As location-spoofing, multi-accounts, fake listings, and promo abuse incidents continue to rise across all industries, utilizing fraud prevention solutions to protect companies and their customers against account takeover (ATO) and fraud has evolved from an optional safeguard to a critical necessity. The 2023 Merchant Risk Council’s Global Ecommerce Payments and Fraud Report showed that 43 percent of merchants had experienced social engineering fraud like phishing, pharming, and whaling, and 34 percent faced friendly fraud as the second most common scam. On the other hand, the report also called out that merchants have been seeking effective fraud detection tools, using five of them combined on average, with over half using credit card and identity verification services. Why do those numbers seem unbalanced?
Online marketplaces, which span a vast range of services such as vacation rentals like Airbnb and VRBO, food delivery giants like Doordash and GrubHub, services marketplaces like Care.com and Postmates, and industry titans like Amazon.com and eBay, need to implement extra security measures due to their business model. Because they’re reliant on peer-to-peer transactions, they need a reliable user verification process that ensures fluid transactions and strong fraud and scam prevention.
As marketplace businesses continue to emerge across sectors, they have transformed into much more than just transactional platforms. Whether it’s food delivery, sitter services or vacation rentals, these platforms have become immersive ecosystems where users seek not only goods and services, but also convenience, trust and frictionless interactions. With this growth also comes some ongoing challenges that can jeopardize customer trust and tarnish brand reputation:
- Identity Verification: Without reliable user verification, bad actors are likely to join the marketplace undetected, leaving them free to create fake accounts, post fake listings, scam buyers, or phish for personal information.
- Trust and Reputation Management: Scammers can easily exploit trust by engaging in fraudulent practices, including romance scams, selling counterfeit or pirated goods, posting fake or manipulating reviews, or engaging in other deceptive practices.
- Payment Fraud: Online marketplaces are vulnerable to numerous payment-related fraud schemes, including card-not-present fraud, stolen card testing, or false refund claims.
- Phishing and Account Takeover: Techniques used to trick users into revealing their login credentials or other personal information can lead to unauthorized access, fraudulent purchases or, even worse, identity theft.
- Triangulation Fraud: It occurs when a fraudulent individual disrupts the marketplace purchasing process by posing as a merchant and accepting orders. However, instead of maintaining their own inventory, they obtain stolen cardholder information to buy products from a third party and have them shipped to the buyer. Eventually, when the cardholder discovers the fraudulent activity, they initiate a chargeback to reclaim their funds. This type of fraud can have significant implications for both businesses and consumers alike.
Robust user verification can play a crucial role in helping online marketplaces address these issues, but oftentimes, traditional methods such as document and selfie-based identity checks introduce too much friction and result in user frustration. Consumers expect online interactions to be easy and quick. Those expectations are no different when it comes to verification, authentication and fraud prevention. Therefore, online marketplaces need to consider not only the efficacy of a verification solution, but also the user experience it will create.
What is Frictionless User Verification?
Put simply, frictionless user verification is a method of verifying the identity of a new user without imposing an unreasonable amount of friction on a new customer. Recent research indicates that more than 50 percent of consumers will switch to a merchant with less friction when it comes to the shopping experience, and 41 percent of all consumers will pay more for simple, fast and efficient shopping experiences. The same holds true when it comes to financial services. A different study that was conducted found that 70 percent of consumers said they’re actively considering switching financial services providers if it means a better experience that doesn’t require personally identifiable information (PII).
Regardless of the function of the platform — be it food delivery, financial services, or dating — offering low-friction user verification methods at account opening and throughout the journey is a must in order to acquire and retain new customers.
Location Identity Technology
Over time, traditional verification and authentication methods, including document-based IDV, one-time passcodes, and passwords, have become vulnerable to advanced spoofing and social engineering techniques. Location identity is a new fraud prevention signal that delivers frictionless user verification and authentication solutions. By collecting various signals from a personal device, including GPS, Wi-Fi, and Bluetooth, this technology is able to identify specific signal environments that devices connect from and silently builds a user’s unique location behavioral profile, all without linking to any PII. As it collects data, the location identity platform learns which locations are highly frequented ones specific to each user and assigns context to them.
This new combination of device and location signals that make up a location identity enables real-time address verification to ensure the identity of new users. With an accuracy rate exceeding 99.99 percent, location data’s reliability trumps even facial recognition identification rates. It has also enabled the development of a much more persistent device fingerprint solution that recognizes returning trusted and bad users to reduce friction and prevent fraud. The use of this data creates an advanced device fingerprinting solution that’s also much less susceptible to typical evasion techniques, such as factory resets or other app tampering methods, used to bypass device identity. Ultimately, a user’s location identity enables a highly accurate risk assessment based on trusted locations and device analysis that can protect against fake account creation and ATO without requiring any action from users.
Location identity also enables the detection of the following:
- devices linked to multiple accounts;
- fake account and listing creation;
- fake and synthetic identities; and
- preventative fraud detection.
The Road Ahead Amidst Rising Fraud
While fraud is nothing new, online marketplaces must ensure they’re protecting themselves and their customers as incidents continue to rise. Regardless of your industry, retaining and acquiring new customers may just come down to fraud solutions that require minimal customer information but offer the highest level of accuracy and reliability.
André Ferraz is the CEO and co-founder of Incognia, an innovator in tamper-resistant location identity solutions for cutting-edge user verification and account security.
View Original Article
