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April 23rd, 2020

Authentication Underpins Ability To Serve Consumer Behavior Shaped by COVID-19

This article originally appeared on RetailDive.com on April 23, 2020.

COVID-19 is driving a surge in e-commerce transactions for some retail verticals, up 40% YoY across 850 U.S. retail e-commerce domains. People over age 60, some of the most vulnerable to the disease, are the most likely to avoid shopping centers and malls. Assuming that distribution centers can meet increased demand safely, older consumers’ move from brick-and-mortar shopping to e-commerce could endure after the pandemic ends.

Look to the precedent set by recent holiday seasons. A spike in Q4 e-commerce spending becomes the baseline for the following year. Considering consumer behavior in relation to COVID-19, Nielsen envisions older generations "turning to online shopping to meet more of their household needs as the pandemic subsides.

Opportunity lurks in the status quo

Merchants with e-commerce operations have an opportunity to attract and serve new consumers in these circumstances. Unfortunately, most digital authentication practices—the means by which they verify customers’ identities—stand in the way.

  1. Passwords frustrate customers and fail to defend merchants. Strong ones are hard to remember. Weak ones are reused with abandon.
  2. Device-fingerprinting solutions, which rate a device’s (e.g., smartphones, laptops, tablets, etc.) risk level in a transaction based on past behavior, can’t determine the trustworthiness of a new customer using an unfamiliar device. If the new customer attempts to make a large first-time purchase, their device’s lack of reputation could flag their order for review.
  3. Discrepancies in order information (e.g. a large distance between shipping and billing addresses, an AVS mismatch, etc.) might set off fraud rules that would ensnare the order in manual review.

If legacy digital authentication practices are too lenient, they will fail to mitigate fraud risk. If they impose too much friction or flag customers for manual review (i.e., false positives), they risk repelling older customers. The latter is a greater risk to merchants. Losses to false declines costs businesses billions of dollars more than losses to fraud. One-third of customers who suffer a false decline are unlikely to return to the merchant. Meeting your customers’ needs and expectations at a time like this is imperative, says Nate Smith, Group Manager of Product Marketing for Adobe Analytics. "It could either make or break your brand.

This is no time to risk insulting new customers, losing sales, and sustaining brand damage on social media. The pandemic has introduced enough uncertainty into the retail sector. Adapting to changes in consumer behavior now will sustain merchants to continue operating in the future. And those changes in consumer behavior should not be assumed to be temporary. Nielsen foresees: Crisis-buying patterns during the outbreak will speed adoption of new, permanent behavior change.

Brands that have invested in authentication indicate that the results are worth the effort. McKinsey reports that when consumers find the authentication process easy, they use digital services 10 to 20 percent more than customers who are frustrated by authentication. This is important, because customers who use digital channels regularly spend roughly 45 percent more than customers who use digital channels sporadically.

A new way: device-based authentication

Retailers can minimize customer friction, false positives, and fraud risk by basing digital authentication on signals broadcast from customers’ devices. This approach, device-based authentication, determines the identity of the device’s user by analyzing the strength of linkages between three sources: the user’s offline data—identifiers such as name, home address, phone number, and email; the user’s online data—such as IP address, cookie ID, or a mobile advertising ID; and data from the user’s device—such as prepaid status, IP behavior, and the presence of a VPN or the Tor browser in the IP address. Device-based data is much, much more difficult to steal or manipulate than online or offline data.

This approach defines the gold standard for security and convenience. If a user’s offline and online identity data corroborates data associated with her device, then her identity can be authenticated and she can be served faster than is possible with other approaches. Consumers’ devices are uniquely attached to their owners and are likely to be replaced quickly if lost or stolen. They are trustworthy proxies for their owners’ digital identities. Device-based authentication is imperceptible to customers and minimizes false positives by establishing high confidence in customers’ identities.

Surpass customers’ expectations

Device-based authentication helps merchants to meet demand, weather this uncertain period, and position for a time when more e-commerce customers will have more discretionary dollars to spend. Easing customer authentication allows merchants to approve more transactions faster. Reducing false positives creates more opportunities to earn loyalty. Fewer orders flagged for manual review allows fraud analysts to focus on fewer cases and reduce fraud loss and chargebacks.

Authentication, the highest-volume customer journey by far," plays an essential role in merchants’ ability to serve the surge of e-commerce customers driven indoors by COVID-19. Merchants that use digital authentication as an opportunity to improve the buyer’s journey will be rewarded with happier and more loyal customers.

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