Every business has a certain number of necessary friction points—such as requesting billing and shipping details—when it comes to payments. But too much friction can drive even the most patient customers away.
In its “Friction – Friend or Foe?” ebook, Ekata looks at how merchants can optimize the friction they apply in their payment processing and strike the right balance between preventing fraud and valuing the customer experience.
Types of Friction
Friction is essential in the customer experience journey. It slows down the process, helping merchants ensure that a transaction is safe and secure. Deciding on a friction strategy is equal parts science and art. Friction can be introduced anywhere in the transaction process—during the account sign-ups, when a credit card is added, or when the customer selects a shipping address. But according to Ekata, “the strategic differentiator when it comes to preventing fraud without creating undue friction is identity verification.”
Whenever possible, companies have customers set up an account so their identity can be verified. This can involve strong authentication measures, such as multifactor authentication, which requires customers to provide multiple pieces of evidence to verify their identity, including a password and a one-time code sent to their phone. Strong authentication can help reduce fraud by making it more difficult for hackers to gain access to accounts or steal sensitive information.
Identity verification doesn’t need to be the same for all customers. In fact, according to Ekata, “the merchant who rises to the challenge—protecting themselves and their consumer, whilst ensuring a fast and easy transaction—is the merchant who deploys a comprehensive, layered identity verification solution; one that boasts an array of dynamic, intelligent ‘step up’ escalation methods. By applying the ‘right friction’ when needed, faster payments can be facilitated while fraud is deterred.”
Right friction is arrived at by doing risk-based authentication, which adjusts the level of authentication required based on the perceived risk in the transaction. For example, if a customer is making a large or unusual purchase, the payment system may require additional authentication steps to ensure the legitimacy of the transaction. Customers who have shopped with a merchant before or are less risky based on their information may skate through with minimal friction, while riskier customers are asked to jump through more verification hoops.
Guest Checkout: A Necessary Risk
Customers who don’t want to go through the effort of signing up for an account with a merchant tend to go through the guest checkout process. Guest checkout, however, does come with its own risks. In fact, identity verification is not as easy, and chargebacks are more difficult to identify as fraudulent. According to Ekata, a retailer can ship a purchase to an address that was provided during guest checkout, then a few weeks later see a chargeback for that very purchase, with a consumer’s claim that nothing arrived. The merchant, in this case, loses revenue. Depending on the cost of the item—and the frequency with which this occurs—chargebacks from guest checkout purchases may end up being costly for merchants.
That said, there’s also a risk involved in not letting through customers who want to use guest checkout, along with the potential loss of revenue from declining those customers.
The best solution for guest checkout is verifying the customer’s information without concluding whether the information is actually associated with the customer, according to Ekata.
Eliminating Unnecessary Friction
While the above-mentioned types of friction are important in preventing fraud, other types are not. Some user interfaces are clunky, unclear, and frustrating to work with. Reducing such friction can involve designing a user-friendly interface, providing clear instructions, and minimizing the number of steps required to complete a payment. By streamlining the payments process, businesses can reduce customer frustration and increase the chances that a transaction will be completed.
Minimizing unnecessary friction can be as simple as identifying friction that isn’t absolutely necessary and removing it. An example might be double-checking an address and sending an email validation link.
It’s also helpful to invest in a faster processing bank or payments system, which automates authentication tools. According to Ekata, “this might be moving away from manual review processes for all transactions and adding faster, automated solutions that speed up good transactions and add friction to potentially bad ones.”
One last approach is giving customers who see their payments rejected a last chance. “This could mean training a team of skilled agents to make account remediation calls, allowing users to transact in a monitoring state that restricts their access to your product; or using third-party data providers for document verification, biometric analysis, or linkage-based data verification,” Ekata noted in its ebook.
There are several ways to maximize friction in payments to reduce fraud and optimize the customer experience. These include implementing strong authentication measures, using risk-based authentication, designing an easy-to-use payment process, and ensuring that payment systems are secure and up to date. Businesses can do this in-house, but it may be easier to farm such functions out to a third-party company.
Ekata’s Identity Engine can validate the legitimacy of customers’ information (name, email, phone, IP, physical address) and determine how those data points appear in other digital interactions. Using the Identity Engine, the Ekata Transaction Risk API generates validity markers and identity scores, which help merchants do risk-based authentication.