As the risks of identity fraud multiply with the growth of online commerce, more and more retailers are seeing a need for KYC (Know Your Customer) and customer authentification tools.

In a presentation on March 23rd at eRisk – London, (the online risk management and loss prevention conference for retailers), Masha Cilliers, founder and principal consultant, Payment Options, will consider how the financial services industry implements these tools and how retailers can leverage that experience.

Currently most retailers are ignoring the risks while others are using cumbersome processes that impact adversely on conversion ratios. There are better and more discreet ways of screening for identity fraud, says Masha. For an introduction to her presentation, read on.

“Almost inevitably cutting down on fraud may come at a cost to the consumer and to the merchant: slowing the checkout process and sometimes even preventing purchases, which can lead to loss of customers and bad publicity for the retailer. So how can retailers manage fraud and keep the customers happy? Let’s look at what the financial services industry does and consider leveraging their experience. One of their key ways to minimising fraud is identity management -the relevant tools being KYC (Know Your Customer) and customer authentication.

“Over the last 10 years or so requirements for banks and other financial institutions to implement KYC have increased substantially, which in turn has led to a growing supply of authentication services and tools whilst dramatically improving their quality and lowering costs. For example, there are now aggregators which can leverage various databases from AML (anti money laundering) and fraud blacklists, to electoral rolls and much more, the identity checking covers many countries and requirements and the interfaces to these can often be reached by an easy API integration.

“I was recently assisting a leading online merchant to set up a fraud screening service. The actual transactional fraud management was automated, but the exceptions and manual reviews were, frustratingly, still plentiful. The merchant in question had requested their consumers, where flagged as potentially fraudulent, to email in a copy of their passport and proof of address. While there was an understandable need for additional precautions, asking consumers to send copies of documents by email is clearly far from ideal, especially in this particular case where service delivery was immediately after placing the order.

“With the above mentioned KYC tools available at relatively low cost, why not leverage them for the manual review and thereby improve and simplify the process whilst saving time and costs in parallel? Of course checking a consumer’s identity will not prevent fraud in all cases, but it will help reduce identity fraud and understand the customer journey much better. Such knowledge of consumers’ behavior could complement other fraud management tools such as morphing and scoring whilst giving some useful insights to the marketing team as to what those consumers like and dislike.

“The fundamental function of retailers’ fraud management strategy should be establishing if the consumer is acting in a normal or an unusual manner and KYC tools can be used to check those transactions which represent higher risk. For example, if the customer is making purchases outside of his typical pattern, retailers could ask the customer to verify himself, rather than decline the transaction altogether and disappoint or even lose the customer, This would certainly help prevent much of the identity fraud such as in those cases recently reported by Uber, Airbnb and a number of other well-known companies.

“Similarly, many retailers only check for fraud when the consumer makes the purchase, although consumers have other interactions with retailers such as: setting up an account, logging back on, complaining, amending delivery address and so on. Using KYC tools can be very useful in these instances. For example, when a consumer signs up with a retailer, but before he or she enters card details, the retailer could check the email address, IP, Geolocation, mobile phone number and the home address against a choice of databases. Having this information in advance of the payment transaction, will allow the retailer to make a more informed decision as to how to route this particular purchase – straight through for fulfilment or for a manual review. Vitally, many of these checks can be performed in the background without inconvenience to customers or negative effects on retailers’ conversion ratios.

“Furthermore, the identity checks will be useful evidence in cases where the retailer needs to defend a chargeback. You can hear more about identity tools, their availability and functionalities at Retail Risk – London on March 23rd where I will be giving a presentation on the subject.”

Masha Cilliers [email protected]