The Goldilocks Principle is named for the classic fairytale from which it came, featuring a finicky girl who intrudes on a family of three bears while they’re away. She tastes their three bowls of porridge, sits in their three chairs and lays in their three beds before finding one that is just right. It’s frequently used to describe situations where the preferred state is not too much of something or not too little – but just in the middle.
This Porridge is Too Hot: Friction in Today’s Solutions
Shopping has drastically transformed since the golden age of department stores, and mobile transactions are increasingly the status-quo, slated to reach around 70% of all e-commerce transactions by 2020. The technologies of today have been developed to prioritize convenience and customer satisfaction, offering a highly personalized online experience, while also providing new paths for completing a transaction. For example, you can easily compare prices from different retailers – even place an order – through a personal assistant like Google Home or Amazon Alexa. FinTech has also expanded the world of traditional payment methods, offering a host of new, convenient platforms that boast simplicity, security and speed. LINK: https://www.statista.com/chart/13139/estimated-worldwide-mobile-e-commerce-sales/
Retailers and payment providers have understood for years that the best customer experiences often correlate with frictionless transactions, and this is especially apparent in today’s solutions. As a result, these industries have cultivated the technology and resources to minimize friction as much as possible. However, they are making a fatal mistake by compromising one potential costly threat (customer attrition due to poor customer experience) for another very real and costly threat (fraud).
As a majority of transactions take place in an increasingly online, faceless and interactionally rich environment, how can we ensure the identity of consumers? Requesting customers to create accounts, enter passwords or answer static questions will undoubtedly increase customer frustration. But as criminals are turning to technology to more easily deceive consumers and steal payment information or account details, businesses need to constantly stay one step ahead. It’s crucial that we can find a balance, then, and apply the right amount of friction in the right place to satisfy the needs of consumers, financial institutions and retailers alike.
This Chair is Too Small: Frictionless Has Issues Too
There is a critical disparity between the consumer’s desired e-commerce shopping experience (smooth, seamless) and the level of friction needed to help mitigate fraud, and many retailers and payments companies are still working to shrink the bumps in the road. However, this new, seamless payments journey also provides a smooth runway for fraud.
For instance, while reducing average transaction time by just five seconds can reduce cart abandonment and ensure the transaction is completed, fewer prompts for identification or weak identification opens up the opportunity for fraudulent accounts to be created, unauthorized account access, identity theft and more. The numbers speak for themselves. LINK: https://www.irs.gov/compliance/criminal-investigation/examples-of-identity-theft-investigations-fiscal-year-2017
One way retailers and financial institutions can overcome this dissonance and create a mutual benefit is to keep in mind the Goldilocks principle. This entails moving beyond frictionless journeys, and moving towards more intelligent journeys with the right amount of friction, in the right places. Then, consumers can shop smoothly and securely, and retailers can ensure they don’t forfeit any transactions, all while reducing fraud. Banks can also avoid the costs and resources associated with fraud prevention and recovery.
This Bed is Too Soft: How Intelligence Fights Anomalies
User identification during the payment process is a primary source of friction. But leveraging intelligent technology that allows the vendor to easily track anomalies can better enable seamless identification. Key to this are strategically placed points of friction, which help weed out the benign anomalies from the actual fraud.
Location anomalies are one tell-tale indicator of fraud. Banks are frequently alerted when a “customer” or a bad actor with the customer’s information attempts to make a purchase in a location far from their typical geographic area. Yet, while an anomaly in location can expose potential fraud, it can just as often be linked to something much more harmless, like a weekend trip to a different state and a credit card swipe at a gas station on the way. No consumer wants to deal with the inconvenience of a declined transaction or account hold. But incorporating other means of identification can prevent this.
Unique to you: Adding behavior as a means of identification, recording and processing a multitude of different data points, from the way a user swipes their phone to their individual keystrokes, can be a more accurate indicator.
More sources, better data: Advances in artificial intelligence and machine learning are allowing us to do a better job of determining the identity of consumers, while introducing the right level of friction to fight fraud. By using several streamlined data points and markers such as device, location and behavioral profiling, as well as client and customer preferences, we can effectively strengthen the identification process.
New methods: Two-factor and multi-factor authentication, present in many current systems, add another layer of security on top of the traditional authentication process. Such as a PIN sent to a mobile phone. But these systems are often seen as cumbersome, with numerous recent examples demonstrating hackable flaws.
Just Right: Putting the Right Friction in the Right Place
When Goldilocks entered the bears’ house and found that the porridge was too hot, she tried a different one. This is exactly what retailers and banks are looking to avoid – consumers switching to competitor’s platforms. By changing the mindset from frictionless to intelligent friction placed strategically throughout the payment journey, businesses in every industry can better serve their customers, dramatically improving the buyer’s journey, driving sales and reducing fraud.