Digital Payments Authentication Requires Agility and Adaptability, a Report Says

As more consumers make more digital payments, financial institutions and merchants face an increasingly complex challenge to better authenticate these transactions. That requires looking at ways to keep pace with criminals and staying in step with consumers, says Aite Group LLC in its latest report, “Digital Authentication: New Opportunities to Enhance the Customer Journey,” released this month.

It’s a challenge compounded by consumer willingness to conduct more financial services online and criminal access to billions of pieces of consumer data. “Financial fraud is a big business that generates billions of dollars in illicit revenue every year for international organized crime rings,” says Julie Conroy, Aite research director, in the report, which was sponsored by Visa Inc.

For example, criminals use stolen credentials to commit account takeovers, where they pose as legitimate consumers. Aite forecasts that account-takeover losses for U.S. financial institutions will surpass $1 billion by 2020.

Contending with this and other fraud efforts, however, must also factor in the consumer experience, Conroy notes. “The impact on the customer experience is also a key consideration—the digital customer experience is a competitive factor for both [financial institutions] and merchants, so any new fraud or authentication solution will be closely examined to understand the degree of friction that it introduces,” she writes.

Her assessment cites behavioral biometrics, behavior patterns, and device identity as the ideal for enabling a seamless authentication process. Behavioral biometrics measures how a person interacts with a device, such as the speed and pattern of typing or the way she holds the device. Behavior patterns monitor user activity to detect suspicious activity or patterns. Device identity encompasses identifiable hardware and software elements associated with a computer or mobile device.

As for biometric authentication technology, fingerprint-based payment authentication will soon be joined by facial recognition on a smart phone when Apple Inc.’s iPhone Xdebuts in November with facial-identification technology.

Aite found that younger consumers are more apt to view facial recognition as effective or very effective. Of Millennials, 71% thought the technology is accurate at identifying them and preventing others from accessing their accounts. That compares to 64% of Generation X, 59% of Baby Boomers, and 53% of seniors.

With that knowledge, a bank or merchant that offers a mobile app that uses biometrics to log in may find it easier for their customers to use than requiring a keyed password, Conroy says.

“Financial institutions and merchants should look for solutions that can enable them to tailor the responses to the risk of the transaction,” she writes.