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Identity verification: How to strike a balance between speed and security

Madhvi Mavadiya

Madhvi Mavadiya

Head of Content, Finextra

Customers require faster speed and greater agility from their payments providers. This is now of paramount importance with emerging trends coming to the fore such as card-not-present transactions, adoption of contactless payments, and new financing options at the point-of-sale.

As more transactions become digital, opportunities for financial crime and fraudulent payments increase. Banks must continue to take a proactive approach to payments authentication and identity verification to combat fraudulent activity and mitigate these ongoing risks. The financial services industry is looking to solutions that leverage artificial intelligence, machine learning and analytics to provide a customer experience with the right amount of friction.

Payment service providers must adapt to consumer needs and the environment in which their customers are living. Current economic uncertainty has led to consumers wanting to know that security is priority number one. Further, they see identity verification as necessary friction and would rather ensure the security and legitimacy of the organisation they are transacting with.

Consumers today are more open to and more tolerant of a process taking longer, as long as they have confidence in the brand and are provided with a convenient service. The right approach must be taken to onboarding, and in a way that meets their expectations and ensures security throughout the customer lifecycle.

When a company achieves this balance between speed and security through identity verification, it increases trust in not only the organisation itself, but other similar businesses. Finextra spoke to Michael Ramsbacker, chief product officer, Trulioo; Chris Reid, executive vice president, identity solutions, Mastercard; and Micheal Sheehy, chief compliance officer, Payoneer about striking this balance.

What are customers expecting from their financial services and payments providers today?

Ramsbacker highlighted that customers are looking for “trust, safety and security. They want to know that the organisation they’re transacting with has put in place steps to keep their accounts and their data secure.”

A recent report from Trulioo, ‘Finding the Payments Sweet Spot Between Security and Speed’, revealed that customers want reassurance from payment providers because attitudes toward “online security and identity verification have shifted considerably during the past three years.”

According to the report, consumers “want to feel protected when they’re opening accounts and engaging with online companies. That focus on security has left consumers far more accepting of the steps businesses take to keep them safe.”

The report found 58% of online payment service customers have become more tolerant of identity verification during the past three years, and 78% are comfortable with identity verification taking longer or involving more steps. The report continued: “Payments leaders acknowledge digital trust has eroded during the past three years, and they’re prioritizing security as a way to redefine their customer relationships and build trust.”

In Reid’s view, “security and trust are critical. In an increasingly digital world, service providers across all industries also face the growing challenge of meeting consumers’ demands around choice, personalisation, and fast and seamless experiences. This is not only a point of convenience for consumers but a fundamental commercial imperative for service providers.

He added: “Nearly half of consumers said it would take just one bad experience online to make them switch to a competitor. As a result, smart, secure, and reliable tools are needed more than ever to verify individuals online and establish trust on both sides of an interaction.” It is important to clarify here that it is not the number of steps included in the onboarding process that makes the consumer leave the process, it is the lack of security or efficiency.

Personalisation, as Reid explored, is also key. In addition to transparency during the onboarding process, consumers also want their personal needs to be catered for. Sheehy believes that for customers, “convenience means being able to access their financial services and make payments anytime, anywhere, through multiple channels such as mobile apps, online platforms, and in-person transactions. 

“Security will always be top of mind. Customers expect their financial transactions and personal data to be protected from fraud, identity theft, and other security risks—and they want to be informed promptly about any suspicious activities related to their accounts. And personalisation is increasingly important. Customers want their financial services and payments to be tailored to their individual needs, preferences, and financial goals.”

The Trulioo report summarised what customers expect from their payments providers today:

What recent efforts have been made to reduce identity theft and fraudulent payments?

According to the National Council on Identity Theft Protection, of the total 5.7 million cases reported to the FTC, 1.4 million – around 25% - were specific to identity theft. This number is growing exponentially, especially because there is an identity theft case every 22 seconds.

Ramsbacker said there are steps companies can take to mitigate the fraudulent payments and identity theft.

“Fraudulent activity on financial services platforms can happen at onboarding, meaning bad actors are creating accounts using stolen identity information or synthetic identity,” he said. “That can be damaging to consumers because their personal information is being used to create accounts, which can cause a range of problems.”

Organisations, Ramsbacker said, are taking steps to make sure fraudsters and identity thieves don’t have the chance to create accounts.  

“They’re also making sure bad actors don’t take over the accounts of good users,” he said. “Some of the protections revolve around artificial intelligence to analyse onboarding transactions and look for anomalies. Organisations are also looking at phishing-resistant authentication mechanisms that do not rely on SMS OTP, or they’re looking more toward biometrics and encryption.”

Sheehy expanded on this perspective and agreed that many financial institutions and online services “have implemented two-factor authentication or are experimenting with biometric authentication, which uses unique physical characteristics, such as a fingerprint or facial recognition, to verify a person's identity. Payments processors are also utilising sophisticated algorithms to detect and prevent fraudulent transactions in real-time. Some companies are exploring the use of blockchain technology to securely store and share sensitive personal information, which could reduce the risk of identity theft.”

What are the benefits and challenges of taking a proactive approach to identity verification?

In order to mitigate fraudulent payments, payments companies must also take a proactive approach to changing market conditions and leverage agile identity verification to build customer trust in their company and enhance business performance. However, according to the Trulioo report, only 24% of organisations are proactive, anticipating market conditions and having the agility to revise identity verification accordingly. Further, 76% of payments companies are reactive and find it a challenge to respond to the changing environment.

The report read: “A gulf is emerging in the payments sector between organizations that have identity verification agility and those with rigid and inflexible processes. A lack of identity verification agility and resilience increases exposure to fraud and security risks. That represents a hurdle for payment service providers when people want companies to protect them. But the implications extend beyond a potential security breach. Payments leaders fear that a lack of identity verification agility will result in lost customers, shrinking revenue and compliance problems.”

Rambacker said the job is never complete when it comes to identity verification.

“You have to be proactive,” he said, “You have to monitor where the good users are being stopped and where the bad actors are getting through. That analysis is continuous, and a risk-based approach to verification can help you proactively analyse the entire workflow and ensure all the services are working together in an optimal way.”

Reid stated that digital identity “can create a more inclusive and transparent society, enabling trust on both sides of an interaction. Taking a proactive approach builds trust between consumers and businesses. In doing so, companies can approve more genuine customers and even bring more people into the digital economy, all while reducing fraud and providing a better user experience.”

Sheehy took a balanced view and explained that taking a proactive approach can provide several benefits such as preventing “fraud and identity theft by verifying the identity of users before they can access sensitive information or make transactions” and in turn, reducing the likelihood of delays or problems during the verification process and improving the overall customer experience.

Alongside this, proactivity can ensure that “customer data is accurate and up-to-date, which can improve the effectiveness of marketing and other business activities,” and “help businesses to stay compliant and avoid legal issues,” Sheehy added. However, there are challenges to this approach.

Sheehy continued: “Proactive identity verification can be expensive, particularly if it involves using advanced technologies or additional personnel to perform checks. Furthermore, the verification process can take time, which can lead to delays in onboarding new customers or processing transactions. This can impact the customer experience and lead to frustration with your service. And some customers may be resistant to providing additional information or going through additional verification steps, which can impact the overall customer experience and potentially lead to lost business. 

“In some cases, the verification process may incorrectly flag a customer as fraudulent or require additional verification steps, even if their identity is legitimate. This can lead to additional delays and potentially damage the customer relationship.”

How would you define customer experience with the right amount of friction?

In the same way that proactivity can ensure a good balanced product offering is provided, payment service providers can use identity verification as a platform to drive growth and operational agility. By consistently finding and maintaining what Trulioo refers to as “the sweet spot in identity verification” can lead to success.

“With those consumer expectations in mind, payment service providers are searching for ways to protect customers and manage an unpredictable risk landscape,” according to the Trulioo report.

“They want identity verification with greater agility and resilience to respond to evolving customer needs and market conditions.

“They also know security measures can’t diminish the digital experience. Customers want to feel safe, but they still expect to open accounts and transact quickly and easily. That’s the identity verification sweet spot, where robust security meets smooth onboarding.” Ramsbacker said customers expect trust, safety and security in their platforms.

“The trade-off with that comes with additional due diligence or steps that you need to take in during onboarding,” he said. “The right amount of friction stems from steps that add value and provide a good user experience.”

But why do customers now see identity verification as a necessary friction? Ramsbacker said that as data breaches and security incidents are dominating headlines, and more of our day to day lives are digital, “people are far more aware of digital risk, they encounter identity verification in almost every online interaction, and they know it’s fundamental to their digital security.”

Consumers are now aware of what a good onboarding process is compared to a bad onboarding process. If your platform or organisation doesn’t have a good user experience, consumers will move on to a platform or organisation that does. Reid refers to this form of friction as “intelligent friction”. He said: “Take online shopping, for example. Consumers will abandon their purchase if they find the experience, such as being asked to answer security questions or access one-time passwords, frustrating.

“In other scenarios, some friction is expected – and even appreciated. When applying for a loan, we expect more friction. In fact, we may even trust a financial institution more when appropriate friction is applied. In both scenarios, intelligent friction prioritises both security and experience. It is closely linked to the context and consumer expectations.”

In Sheehy’s view, “defining the right amount of friction in customer experience can be challenging, as it depends on the specific context of the business or industry.” He continued: “A certain amount of friction may be necessary for security or regulatory reasons, but it should be kept to a minimum to avoid frustrating customers. Creating transparency in the process is key, so including clear instructions and information about why certain steps are necessary will help to build trust and reduce the perception of unnecessary friction.”

In addition to this, it all comes back to increasing choice and personalised experiences for Sheehy. “Personalising the experience can help to mitigate any friction that may exist. For example, using pre-populated fields with previously entered information or offering customisation options can help to streamline the process and reduce the perception of friction. Offering customers flexibility in the process can also help to reduce friction. Allowing customers to choose between multiple verification methods or offering different payment options can help to accommodate different preferences and reduce any potential friction.”

He added that businesses must utilise technology to make onboarding as stress-free as possible for customers. “I have seen many FIs gamify the KYC process to make it fun and give a customer a sense of achievement and completion whilst also getting what they need to meet their compliance needs.”

How can a payments services provider balance security and speed to create trust?

Enhancing services with increased choice and personalisation – and proactivity mitigating fraudulent payments - helps payments services providers balance security and speed to create trust. Reid agreed with this and said that “combining a seamless experience and security enables financial institutions to stop fraudsters in their tracks, protect their revenue and reputation and better serve their customers. This can only be achieved through adopting a multi-layered approach, where we incorporate a variety of signals, such as behavioural biometrics, identity elements, and data insights. When combined, these signals help us build trust on both sides of a digital interaction. Lastly, no person should have to choose between convenience and security. The right tools embed the highest security standards, building trust in the digital economy today and tomorrow.”

Ramsbucker concluded by saying that while “identity verification and onboarding at a global scale is challenging, a flexible approach can help payment service providers create trust on their platforms.”

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