An average smartphone user is online for 3-4 hours a day. Whether for work, entertainment, or financial purposes, they utilize a digital service every single day.
If you, the reader, stop and think about it for one second, most of your digital interactions are almost intuitive. Your thumb knows where to go. You open an app, you address your requirements, and you leave. In this digital journey, what if there were multiple points of friction? Multiple points where your identity was being re-verified, or you were asked to input OTP every time you logged in. Irritating, right?
Well, it’s not that easy. There might be some instances where you are okay with some amount of friction. For example, if you want to make a high value transaction on your card - you would probably like it if there was some layer of additional security. However, this might not be true when you want to log into your Instagram or Amazon account. So, how can fraud prevention companies choose where to introduce friction and where to let user experience reign?
In this blog, we want to introduce intelligent frameworks that help reduce fraud while maintaining an optimal user experience.
Understanding the fraud vs UX challenge
User Experience (UX)
UX design prioritizes creating a smooth and intuitive experience for users on digital platforms. This means making interactions with the digital platform clear, efficient, and enjoyable to keep users engaged and coming back.
Fraud prevention
Fraud prevention measures focus on safeguarding user data and systems from being targeted by malicious actors. This often involves implementing measures that might introduce some friction into the user journey, like password requirements or multi-factor authentication. But these steps are crucial to maintain user trust and prevent costly attacks.
Security vs. Speed: The fallout of extreme priorities
When businesses prioritize either security or user experience to the extreme, they risk significant fallout.
Prioritizing Fraud Prevention: This can lead to increased cart abandonment and customer churn. For instance, a bank that demands excessive information for a simple money transfer might push users to seek more convenient alternatives. A 2023 Innovatrics study found that 63% of customers abandon digital bank onboarding, often due to lengthy and complex processes. This highlights the negative impact of excessive security measures on user experience.
Prioritizing User Experience: Conversely, focusing solely on user experience can increase vulnerability to fraud attacks. An e-commerce site without proper authentication for purchases might enjoy initial customer satisfaction but suffer long-term trust issues due to fraud incidents. eCommerce companies are estimated to lose $48 billion to fraud each year.
Related read: Unraveling Fraud Types as We Move Through the Customer Journey (+Detection Methods)
Finding your sweet spot: Frameworks for balancing UX and fraud prevention
Framework 1: Fraud prevention VS user experience matrix
A matrix that plots user experience against the level of fraud risk.
Imagine a quadrant divided into two axes: User Experience (UX) on the horizontal axis and Fraud Risk on the vertical axis. This framework helps visualize the tension between user-friendly interfaces and robust security measures. Here's an expanded breakdown of each quadrant:
1. Low UX, Low Fraud (Safe but Frustrating):
- Description: This quadrant represents a situation where security is prioritized to an extreme, often at the expense of user experience. Websites or apps may have:some text
- Excessive verification steps
- Complex login procedures
- Unintuitive interfaces
- Impact: While user frustration might be high and lead to cart abandonment or account churn, the low fraud risk ensures a safe environment. This approach might be suitable for highly sensitive data but needs careful consideration for everyday interactions.
2. High UX, Low Fraud (Optimal Zone):
- Description: This quadrant represents the ideal scenario. Users enjoy a seamless and intuitive experience with minimal friction, while the system effectively manages fraud risks. This is achieved through:some text
- Streamlined verification processes
- User-friendly interfaces
- Adaptive security measures (explained later)
- Impact: This quadrant delivers high user satisfaction and minimizes the risk of losing customers due to inconvenience. It's the optimal zone for most businesses to strive for.
3. Low UX, High Fraud (Unacceptable Zone):
- Description: This quadrant represents a situation with both low user experience and high fraud risk. It's the worst-case scenario, where cumbersome processes deter users while failing to protect against fraudulent activity adequately. This can be caused by:some text
- Outdated security protocols
- Lack of user authentication
- Poorly designed interfaces
- Impact: Users are likely to abandon such a frustrating platform, while the high fraud risk exposes the business to significant financial losses. This quadrant demands immediate improvement in both UX and security measures.
4. High UX, High Fraud (Risky Zone):
- Description: This quadrant represents a situation with a user-friendly experience but a high risk of fraud. While users enjoy a smooth interaction, the system lacks sufficient security controls to prevent fraudulent activity. This can be caused by:some text
- Overly simplified verification steps
- Lack of multi-factor authentication
- Ignoring user risk profiles
- Impact: High user satisfaction comes at the cost of increased vulnerability to fraud. This requires implementing robust security measures (explained later) without sacrificing the user experience.
Framework 2: Need-Based Friction
Adjusts the level of friction based on the user's risk profile and the nature of their activity.
1. High-Risk Activities: When a user engages in actions deemed high-risk, like large financial transactions or accessing sensitive information, the system ramps up security measures. This could involve multi-factor authentication, additional verification steps, or even temporary account lockdowns for suspicious activity.
2. Low-Risk Activities: For everyday, low-risk tasks like checking account balances or browsing product pages, minimal verification might be needed. This allows for a seamless and efficient user experience.
This framework looks at taking a risk-based approach when implementing fraud prevention strategies.
Apart from the interaction level of a user with the platform, there are instances where the same platform may vary its fraud controls when offering different services to specific users.
Power users may get easier access to the services, while new users or flagged users will have to go through multiple scrutiny checks.
Framework 3: The Industry Spectrum
If, on the one hand, fraud controls are customized based on user activity, there is another angle where the industry itself determines what kind of friction a user must experience.
Some industries need extremely robust verification and authentication protocols in place, considering fraudulent activities may impact the wider economy. Some industries, however, depend on how smoothly and fast they can process a customer’s request. Speed would wear the crown in these particular industries.
1. High-Security Industries: Financial Services (loans, money transfers, stock trading)
Stringent security measures are critical in industries with high fraud risk, such as financial services. For example, a loan application process might integrate multi-factor authentication to ensure security while maintaining a streamlined process through user-friendly interfaces and clear instructions.
Financial institutions often implement strict KYC (Know Your Customer) procedures for comprehensive identity verification. Additionally, ongoing fraud monitoring for account activity ensures that any suspicious behavior is detected and addressed promptly.
2. Balanced Industries: E-Commerce, Online Gaming
In the e-commerce sector and online gaming, finding the right balance between security and user experience is essential. Implementing one-click checkout can enhance user experience, but it must be coupled with strong password requirements and real-time fraud monitoring to ensure security.
Risk assessments based on user behavior and purchase history help identify potential threats while maintaining a smooth user journey. Secure login options, such as fingerprint recognition, add an extra security layer without significant friction.
3. High User Experience Industries: Content Streaming Services, Travel Booking Platforms, Social Media,
For industries where user experience is paramount, such as content streaming services and travel booking platforms, the focus is on providing a seamless experience with adequate but less intensive security measures.
Faster account creation with social media logins simplifies the onboarding process, making it more appealing to users. Minimal verification steps for low-value purchases ensure that users can quickly complete transactions without unnecessary delays.
Passwordless login options, like magic links, offer a convenient and secure way to access accounts. While these industries may face lower fraud risks, it is still essential to implement thorough background risk assessments to maintain a safe environment for users.
Strategies for reducing fraud with minimal friction
At a basic level, users want convenience without compromising on their security. Passive checks that do not disrupt the user experience is the future.
At Bureau, we have a multi-faceted approach to fraud prevention. Here are our recommendations:
1. Risk-Based Authentication (RBA)
- Adjusts security measures based on perceived risk.
- Low-risk activities: Minimal verification required.
- High-risk actions: Robust checks are implemented.
2. Behavioral Biometrics
- Analyzes user behavior, such as typing patterns and mouse movements to detect anomalies.
- Operates transparently, enhancing security without disrupting the user experience.
Related read: Behavioural Biometrics for Frictionless Authentication
3. Multi-Factor Authentication (MFA)
- Combines multiple verification methods (e.g., SMS codes, biometric scans) for higher security.
- Dynamically adjusted based on user behavior and risk assessment.
4. A step ahead - Silent authentication
In all the above cases, the user is subjected to varying levels of intrusive authentication processes. They all include - passwords, OTPs (or both).
But these are vulnerable, too. Bad passwords are still the leading cause of account breaches globally. The most common password still remains 123456.
OTPs are vulnerable to weak passwords and fraudulent activities like SIM cloning, SIM-swapping, MITM attacks, and forms of social engineering. Governments and regulators worldwide are aiming to move away from OTPs soon.
"However, technological developments and more sophisticated social engineering tactics have since enabled scammers to more easily phish for customers' OTP, for example through setting up fake bank websites that closely resemble the genuine websites." Monetary Authority, Singapore
Bureau presents Silent Authentication - A user can be verified in mili-seconds with just one tap. Zero friction, 100% security.
Recommendations for online platforms
Now that you know what technologically powered solutions we recommend, we wanted to tailor those recommendations to each industry. As seen in the industry risk spectrum framework, the industry you are in will demand different levels of user verification.
BFSI (banking, lending, investment, insurance):
- Implement biometric verification and behavioral analytics to enhance security.
- Use risk-based authentication to balance security needs with user convenience.
Example: Banks like Bank of America use facial recognition for secure and quick user verification. See the hype when they launched it here.
E-Commerce:
- Simplify the checkout process with one-click payments for returning users.
- Employ real-time fraud detection systems to analyze transactions and reduce chargebacks.
Example: Amazon uses advanced fraud detection algorithms to secure transactions without adding friction.
Hyperlocal Delivery:
- Implement real-time address verification to prevent fraudulent orders.
- Use AI-powered fraud detection to monitor delivery patterns and identify anomalies.
Example: Hyperlocal delivery services like Swiggy and Zomato can leverage AI to ensure secure transactions and deliveries.
Social Networks:
- Employ strong identity verification during account creation to prevent fake accounts.
- Continuous monitoring is used to detect suspicious activities such as account takeovers.
Example: Platforms like Facebook and Instagram use a combination of verification techniques to maintain account security while offering a seamless user experience. Regular power users can just log in with a single tap even after uninstalling the app.
Striking the golden ratio for satisfied customers and secure operations
While machine learning is a powerful tool for a smoother experience while there is robust fraud detection, businesses must adopt a holistic approach to building a strong defense.
- Educating users about common fraud tactics and encouraging safe practices can significantly reduce risks.
- The ability to interpret and act on risk data insights is crucial for CEOs, risk assessment managers, and banking officials. By utilizing Bureau's risk scores, they can not only enhance security measures but also refine customer experience strategies, ensuring that legitimate users face minimal friction while suspicious activities are flagged and addressed promptly. This proactive approach not only mitigates risks but also builds customer trust by demonstrating a commitment to secure, seamless service.
- Adhering to industry regulations and standards ensures that security measures are up-to-date and effective.
Achieving the golden ratio of satisfied customers and secure operations involves a combination of advanced technology, user education, and regulatory compliance. By continuously adapting to new challenges and opportunities, businesses can maintain the delicate balance between preventing fraud and delivering an exceptional user experience.
In conclusion, the balancing act between fraud prevention and user experience is complex but achievable. By understanding industry-specific risks, leveraging technology, and prioritizing user education, businesses can create a secure and satisfying digital experience for their customers.
