Report: Removing Customer Friction is Top Challenge in Preventing Fraud

Consumers’ expectations for fast and easy transactions have hit an all-time high. Making the checkout process fast and seamless is a priority for most retailers, but they also must balance customer experience with fraud prevention. In its 2018 Fraud Report, IDology revealed that verifying customers while also delivering an experience that's free of friction is reported by businesses as their biggest challenge in the fight against fraud.

Reducing the steps and effort a customer must take to complete a transaction and applying friction only when needed is critical for preventing cart abandonment. Unfortunately, retailers are also at a high risk for fraud and must implement verification processes to mitigate risk. Often, those processes can be long and cumbersome for consumers, placing a drag on the customer experience. It’s a growing challenge that can only be solved with a strategic approach and multiple layers of identity verification … more on that later.

As we begin a new year, this is a struggle retailers will find increasingly challenging. Each year, the IDology report helps retailers and other businesses understand fraud and innovative ways to overcome challenges in fraud prevention. The report surveys hundreds of executives and analysts in risk, fraud, compliance, product and operations to capture the impact, challenges and perception of fraud among leading companies.

So, what did this year’s report reveal?

Highest Growth: Online and Mobile Fraud

Fraud of all types increased significantly in 2018, with 58 percent of businesses reporting more fraud than the previous year. Data breaches have made a growing amount of personal information available to criminals who are shifting their focus to customer-not-present transactions. Sixty-seven percent of businesses experienced an increase in online fraud, and 63 percent have seen mobile fraud rise.

The most prevalent fraud schemes across industries in 2018 have been mobile device attacks, phishing and account takeover. Phishing, which Verizon’s 2018 Data Breach Investigations Report noted was behind the vast majority of last year’s security breaches, has continued its steady rise and increased by 66 percent this year.

Fighting Fraud Becoming More Complex: Identity Verification Key

To successfully compete in mobile and online environments, retailers will need to look upon more robust, smart identity verification processes that ensure fraud prevention without compromising the customer experience. However, many are finding this is easier said than done. When asked how identity verification has changed in the last three years, 75 percent said it has become more complex. As fraud schemes become more complicated, businesses are having a hard time keeping up with the latest threats. Consider the following:

• 32 percent feel unprepared to prevent mobile device attacks, such as malware and hacking;
• 32 percent feel unprepared to prevent synthetic identity fraud; and
• 25 percent feel unprepared to prevent account takeover.

Most companies understand the importance of identity verification in fighting fraud. In fact, 85 percent agree it can be a strategic differentiator. In order to limit customer friction as much as possible, expect more retailers to adopt advanced digital identity verification solutions.

Reported among the biggest trends in identity verification over the next three years to five years are:

1. Identity verification via mobile device attributes (44 percent)
2. Artificial intelligence (42 percent)
3. Machine learning (41 percent)
4. Submitting ID documents via mobile devices (40 percent).

Traditionally, retailers have had to balance the desire to offer a low-effort, simple experience with the need for additional layers of verification to deter fraud. Yet many are realizing that escalating to additional authentication methods only when necessary, leveraging mobile network operator data to quickly greenlight customers, and using smart layers of identity attributes that work together to analyze disparate identity characteristics are the keys to earning and keeping customers.

For more information on fraud prevention trends, current fraud threats and how retailers are combating them, read the full IDology Sixth Annual Fraud Report.

Christina Luttrell is the senior vice president of operations, including product, client solutions and marketing, for IDology, a leader in multilayered identity verification and fraud prevention.