The more digital the world becomes, the more opportunities there are for fraud to sneak in. This can lead to many unanswered questions for consumers and businesses alike.
In our May 19 Market Pulse webinar, fraud expert Adam Gunther, Senior Vice President & CPO of Global Identity & Fraud Product Management at Kount, an Equifax company, had a one-on-one chat with Olivia Voltaggio, Senior Content Manager for the US Information Solutions business here at Equifax. They discussed digital fraud and how to mitigate it at every stage of the customer journey.
Below are Gunther’s answers and insights on managing digital fraud. And, for more insight from our expert and other presenters you can watch our webinar here, as well as register for upcoming webinars.
What are some of the challenges you’re seeing on the ground for businesses related to digital fraud? What are some of the ways those challenges manifest at every stage of the customer journey?
Adam Gunther: What we're hearing is that your customers are really wrestling with this dichotomy. There's a trade off that they believe they have to make between consumer experience and fraud. On one hand, we want less friction, but we also want less fraud. These things are sometimes at odds with each other, especially in the U.S. market. If we look at payments as an example, this is the country where we couldn't get chip and PIN technology adopted because nobody wanted to enter a four digit PINnumber and stop for a second, despite just how that personally would make everyone’s life easier for fraud.
I believe that's a myth, that you have to trade those things off, but it's something that our customers are constantly wrestling with. If you look across the journey you basically have a few steps. When we talk about new user engagement and account opening, as a business I'm trying to kind of evaluate a couple of things. I'm trying to understand first is this person, a real identity, or is this a synthetic identity.
Second, if I know it's a real person, is that actually them at the other end of the transaction, or somebody stealing their identity. And, even if I can figure those two things out, I'm trying to wrestle with other things that I want to know about that individual. Once I've onboarded the user I worry about account takeover for my repeat customers. Today like all industries, we send you the one time passcode that can be intercepted by deep fakes. These hackers may know the knowledge base questions as well.
When we get to the transaction and I'm a retailer, I don't actually care about the identity, I want to know, do I have a chargeback risk? Is this person good for the payment? That's where the digital signal starts to become more important. Passive authentication starts to become more important, but how do I reduce that.
It's really not about fraud, it's about digital engagement. It's about reducing my cost of acquiring a customer, it's about growing lifetime spend with the customer and, at the end of the day, that's really an identity problem. So when we think about digital identity it's so much more than fraud.
What are some fraud challenges digital banks are facing, especially with regards to unbanked or underbanked consumers?
Adam Gunther: The biggest challenge is that these are individuals that don't have a large digital footprint, at least in the traditional financial sense and account sense, or, don't have a large traditional financial history. That being said, it is important to go back to those specific questions:
- Is this person a real person?
- Are they actually the right person presenting themselves to me?
- What other risks around that transaction do I have?
In particular for unbanked and underbanked consumers the challenge is whether it is synthetic identity? Sometimes it's hard to tell. We rely heavily on alternative data sources within that decision. The more data signals that you can pull in on an individual from different sources than you traditionally think about, the more you can corroborate.
On that second question, is this an identity theft situation? Sometimes when you get into an underbanked and unbanked population, there's not always modern devices. They're not going to have an iPhone with modern encryption on it. That being said there's techniques you can do to lower friction, but in some cases, you can't.
What we see is step up authentication methods, which means really thinking through the go and throwing the gauntlet to somebody when they visit our website for the first time and not thinking. Maybe then we can allow them to do certain things without higher levels of assurances. And then really the transactional nature comes down to those alternative data sources. Getting the data is a challenge that we see often.
Have you seen a change in how consumers are responding to the fraud challenges brought on by the acceleration to digital? How does that impact their decisions on which companies they choose to engage with?
Adam Gunther: It's more than digital. We're seeing a rise, not just in digital, but in a hybrid transaction. Whether that's, I'm purchasing digital and I'm picking it up in the store, or I'm purchasing digital and I'm getting the goods sent to my house, but maybe i'm doing my return in store. A lot of this was changing how we interact with businesses in creating these new experiences and that's created new Fraud vectors.
Consumers hate when you introduce friction when they arrive in the store. That is why looking at both digital and physical data and thinking about how we can connect those worlds is an interesting challenge that we've seen. We've also seen a rise in buying behavior. It's not necessarily like fraud, but as a result of this we're seeing more people that don't go into stores. Especially in the retail world we're seeing certain patterns around chargeback risk when we look at our chargeback data around buyers that maybe weren't a chargeback risk in the world before, but now the behaviors of change we're seeing are different than the original buying behavior patterns. It is important to understand how the world has changed, and some of those new behaviors are interesting.
We're also seeing a rise in in-person contactless, especially in the banking world. This is where consumers are going to walk into a branch, but don't necessarily want to interact with other individuals. And yes we're going back to normal now and in many circumstances consumer expectations have changed, especially when you look at Gen Z, Millennials, even the younger generations that like to work in that kind of a mode where they are not as interactive, even in person. That being said, if you're really not thinking about digital or hybrid interactions you have to be because the world's changed.
How are businesses balancing the need to make the customer experience seamless with the need to mitigate fraud?
Adam Gunther: This is one of my areas I'm really passionate about. It's a huge myth that you can't do both. It's something I've been working on for years in the digital identity space, even before I joined Equifax.
As an industry we work in silos, especially when we think about digital identity. My identity is very disconnected everywhere that I do business. Everyone's wrestling trying to get data without my knowledge behind the scenes to then connect those dots to figure out what the risk is of doing business with me. And we can keep going down that pattern, but if we change the thought process to how we approach digital identity we could actually provide a better digital experience and reduce fraud. The idea is that we could use modern technology, modern encryption and cryptography, where we can actually connect people's digital identities behind the scenes in a way that is secure, transparent, and involves the consumer.
Imagine I go to one business and onboard for the first time. We have the ability to drop modern cryptography tokens on people's devices that we can check and cryptographically prove that that is the device that I saw that one interaction, whether it's a laptop i'm logging into a website on or any other interaction.
That means, if I go to another business that's part of that same identity trust network, all I can do is consent and permission my information to go to this new business, and I could be onboarded within one click and start to do business with a second business.
To that business, they can onboard me fast and that actually presents a channel that I can grant any data about me. We start to set up for this world where we can get to things like one click loan applications because we're actually tying data to individuals linked to cryptography and then involving the consumer and a consensus, exchange of information. If we start to bring that together and just think about identity, a little bit differently, which means we all work together a little bit as an industry, we could really change how the world works today.
Can you give some examples of best practices companies are implementing to solve their fraud challenges at each stage of the customer journey?
Adam Gunther: One thing that we're seeing smart companies really do is think about what we call a step up experience. This is where every time I log into a website it's not that I am getting the gauntlet thrown at me. You don't have to do things like one time passcode up front, you can do things as you go.
And there's ways to do a one time passcode, where you can check to see if there's some swaps and things on the back end. What we find is that those transactions are more significant in nature. Consumers sometimes are happy to see that you introduce friction. They actually have more trust with you as a business because they believe you're not going to let just anybody come in and steal my money or do something. They don't like it when you introduce it when you don't have to, or you introduce it in repeated and innovative ways.
Thinking about that as a holistic experience is definitely a best practice we've seen and then within that leveraging things like behavioral biometrics and modern encryption to allow authentication to be more passive and more secure, at the same time.
The second area is really thinking about the digital journey. Let's stick with digital banking again. If I'm going to do any type of transaction, income, credit history it's more data than just the fraud signals and I think really piecing together a complete picture of somebody's identity. Getting that 360 degree view allows you to really think about a full journey from identification, to the fraud assessment, to digital engagement on that first engagement and then really digital growth beyond that.
What are some actionable insights you would give our audience today when it comes to mitigating fraud?
Adam Gunther: Don't sit on the sidelines. Companies like Uber have thought about digital as it relates to the physical world. They understood consumers and their problems and they designed an experience for the digital age, and they disrupted a whole industry.
And you could look at examples there too with digital banking and some of the modern fintechs and they're taking advantage of modern technology. They're taking advantage of more simply being able to tie data to people and are taking advantage of an evolving regulatory landscape as well.
It all goes back to what I was just starting to talk about with the digital journey in the last question. The technology's there and now we can imagine a different world. Recently, we've done some cool work with some banks in Canada around digitizing a KYC process that five years ago was unimaginable. That's the next frontier and it transcends every industry. To conclude my parting thought it to do something or you're just going to get left behind.
For more information and insights on managing digital fraud across the customer journey, download our presentation deck or watch our May 19 webinar recording.
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