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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

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June 12, 2017


Watching Your Behavior

Customer authentication has been at the core of the Retail Payments Risk Forum's payments risk education efforts from the beginning. We've stressed not only that there are legal and regulatory requirements for certain parties to "know your customer," but also that it is in the best interest of merchants and issuers to be sure that the party on the other end of a given transaction is who he or she claims to be and is authorized to perform that transaction. After all, if you allow a fraudster in, you have to expect that you or someone else will be defrauded. That said, we also know that performing this authentication, especially remotely, has several challenges.

The recently released 2017 Identity Fraud Study from Javelin Strategy & Research estimated that account takeover (ATO) fraud losses in 2016 amounted to $2.3 billion—a 61 percent increase over 2015's losses. (ATO fraud occurs when an unauthorized individual performs fraudulent transactions through a victim's account.) Additionally, new-account fraud on deposit and credit accounts has increased significantly and generated several public warnings from the FBI.

In payments, the balancing act between imposing additional customer authentication requirements and maintaining a positive, low-friction customer experience has always been a challenge. Retailers, especially online merchants, have been reluctant to add authentication modalities in their checkout process for fear that customers will abandon their shopping carts and move their purchase to another merchant with lower security requirements. Some merchants have recently introduced physical biometrics modalities such as fingerprint or facial recognition for online orders through mobile phones. Although these modalities have gained a high acceptance rate, they still require the consumer to actively participate in the authentication process.

Enter behavioral biometrics for online transactions. Behavioral biometrics develops a pattern of a user's unique, identifiable attributes from when the user is online at a merchant's website or using the merchant's proprietary mobile app. Attributes measured include such elements as typing speed, pressure on the keyboard, use of keyboard shortcuts, mouse movement, phone orientation, and screen navigation. Coupled with device fingerprinting for the customer's desktop, laptop, tablet, or mobile phone, behavioral biometrics gives the merchant and issuer a higher level of confidence in the customer's authenticity. Another benefit is that behavioral biometrics is passive—it is performed without the user's involvement, which eliminates additional friction in the overall customer experience. Proponents claim that while it takes several sessions to develop a strong user profile, they can often spot fraudsters' attempts because fraudsters often exhibit certain recognizable traits.

Behavioral biometrics is still fairly new to the market but over the last couple of years, some major online retailers have adopted it as an additional authentication tool. Like any of the physical biometric modalities, no single behavioral authentication methodology is a silver bullet, and multi-factor authentication is still recommended for moderate- and higher-risk transactions.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

June 12, 2017 in authentication , banks and banking , consumer fraud , fraud , mobile banking , payments | Permalink

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