A subtle but important shift

By Mark Austin, Head of Digital Product Solutions • Visa Europe

April 18, 2016

Risk tends to be thought of as a negative concept, but aren’t risks and opportunities inextricably linked? After all, you can’t have one without the other. Risk isn’t inherently bad – It’s how you manage risk in the context of opportunity, and balance the two, that’s important.

At Visa Europe we’re very much in favour of what we call a “risk-based approach” to online customer authentication. It’s about getting to know genuine customers better, so we can more effectively manage risk. Then we can help retailers accept more sales while minimizing the number of false positives.

The false positive problem:

False positives are when legitimate sales are wrongly flagged as fraudulent, and they lead to one of two things:

  • the purchase being declined
  • the customer having to prove it’s really them making the purchase, usually by entering a password or other credentials (also known as customer authentication)

If it’s declined, the customer and the retailer loses out, because the sale can’t be completed. If authentication is required, there are extra steps during the check-out process, which increases the chances of the customer abandoning the purchase.

Either way, false positives lead to lost sales.onl

A subtle, but important, shift

Risk-based authentication manages the false positive problem more effectively than always asking for extra authentication.

Instead of taking a blunt instrument to the identification of fraudsters, a risk-based approach helps better identify genuine customers. Using data to recognise customer behaviour, device, location and other established characteristics, there’s less need to ask for passwords or other credentials. The rationale is this: If you know what true customer behaviour looks like, fraudulent behaviour will stand out. So there’s little to be gained, and much to be lost, by inconveniencing legitimate customers.

A risk-based approach still pulls out some purchases for authentication, but only the higher risk ones. The overwhelming majority of sales can proceed without this, as they are not high risk.

The win-win

A number of our members have implemented risk-based authentication for Verified by Visa. One case study saw a 58% reduction in abandonment rates post-implementation, whilst fraud prevention rates remained stable. Another experienced the same: reduced abandonment, no increase in fraud, together with an 80% reduction in calls from customers to reset passwords. In both cases, fraud rates for Verified by Visa-authenticated payments remained stable and were around three times less than for unauthenticated payments. What’s more, when Verified by Visa was used, the authorisation rate increased by 10% again, leading to even more successful sales. This was as true for sales authenticated with a risk-based approach was it is for sales that required the full password.

Card issuers like risk-based authentication and so do online retailers. After all, the online shopper is their common customer. Customers like hassle-free check-out, and if customers are happy retailers are happy. And if retailers are happy, their acquirers are happy too.

Minimising false positives and accepting more genuine sales. That’s what everyone wants — and what risk-based authentication helps deliver.

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