The digital fraud fight: Too little or too late?

“In the mad pursuit of creating frictionless experiences … one often forgets that some friction in the customer journey is okay, and even desirable”

The art of con is getting more and more innovative by the day, so much that digital transformation has come to mean fraud transformation.?

The pandemic changed consumer behaviour to such an extent that the shift to online shopping has become near universal across consumer categories. And this inspired a major change in how criminals approach fraud.?

Firstly, the vulnerabilities of internet users are many. Secondly, merchants have been so desperate to win new customers; in pursuit of making customer journeys fast and frictionless, a good number of them put authentication and validation checks on the backburner.

It’s not surprising that fraudsters are striking these weak spots.

A flurry of frauds

While India’s digital commerce transactions grew 30% in 2021, 760 basis points higher than the global growth rate, it has also had a steep rise in digital frauds, according to RBI.

The number of online banking fraud cases in India grew by 162% between 2017 and 2019.?

Merchant losses alone to online payment fraud is expected to exceed $206 billion cumulatively for the period between 2021 and 2025, according to Juniper Research.?

• One in four merchants are struggling to implement payment security solutions.?
• Some 38% of merchants lost at least 6% of their revenue to payments fraud in 2020, according to the June 15 report from payments processor FIS.?
• Six out of 10 merchants worldwide reported higher rates of e-commerce fraud in 2020 and are struggling to cope with rising payments fraud.

Clearly, the problem of frauds is a whole lot bigger than we realise or acknowledge.?

The challenge for FinTechs

There’s no doubt that FinTechs have revolutionised the point of sale for merchant clients. As FinTechs, you may have also ensured a dramatic rise in ‘average order value’ for your clients.?

Nonetheless, the bigger question is, “Did the gains come at a heavy cost?”.

The onus is on FinTechs to also safeguard the terminal they revolutionised.?

“Payment providers and BNPL players must strike a fine balance between user experience and fraud checks. Because speed shouldn’t come at the cost of due diligence.”?

Simple, small steps go a long way

An ounce of prevention is better than cure. And by an ounce, I mean simple authentication checks. You don’t have to build advanced AI/ML models to beat frauds. This is not to discredit machine learning models, but to simply point to the fact that a good majority of fraudulent activities can be caught with simple checks.?

• Validate user-identity during onboarding.?

Make sure that each identification credential is cross-referenced with an authenticated database. It may add another 30 seconds to the user journey, and that’s okay, as long as you do it without complicating the onboarding process.

• Deploy liveness checks and fake-document checks

Live identity verification techniques like selfie photos or live videos will help in preventing frauds committed using fraudulently obtained documents and imposter documents. Check for false watermarks, font mismatches, data irregularities, dubious dates for financial transactions, say a bank transaction on a Sunday, etc.?

??As Benjamin Franklin said, if you fail to plan your defence, you are planning to fail.?