Consumers were quick to develop new shopping habits in the wake of pandemic restrictions and closures this past year, with eCommerce sales in 2020 growing by 32% year over year in the U.S. alone. Merchants and their customers swiftly realized the conveniences of conducting transactions online, but they quickly also noticed the risks associated with a heavier digital presence.
Phishing, ransomware and malware attacks substantially grew during this time, rising from under 5,000 attacks per week in early 2020 to more than 200,000 per week in April 2021. Executives responded proactively, investing in identity verification and fraud prevention services.
These tools are doing their part to curb identity theft and fraud losses for customers and the businesses they frequent, but many also are contributing to another threat: false positives, in which fraud detection systems flag and decline transactions involving genuine customers. False positives can have extensive consequences and ultimately lead to lost customers and revenue.
The problem can be traced to overly onerous fraud detection systems that rely on static, historical data to determine red flags, but that is not the only potential trigger of customer loss. Friction points throughout the digital onboarding process can lead to cart abandonment, but many businesses do not have a high level of visibility into their own systems’ frictions.
This is one reason companies are turning to behavioral analytics, a technology that not only offers greater accuracy in fraud prevention than traditional identity solutions but also can provide a view of exactly where the online customer journey breaks down.
The following Deep Dive examines the problems of false positives and digital onboarding frictions and the threats they pose to merchants’ bottom lines and customer relationships. It also explains how behavioral analytics can prevent fraud and reduce false positives and other pain points in the shopping experience, and ultimately lead to higher conversion rates and customer satisfaction.
False Positives and Other Verification Pain Points
False positives represent a substantial issue in eCommerce. Jack Alton, CEO of behavioral analytics provider Neuro-ID, recently told PYMNTS that an estimated 40% of positive fraud flags recorded by fraud prevention services that decline all suspicious transaction attempts actually represent legitimate customers attempting to make purchases. Such false positives can jeopardize companies’ revenues, with one study predicting that losses due to false positives will reach $443 billion this year — eclipsing even losses caused by fraud itself.
However, false positives are just one friction point in identity verification that can lead good customers to leave. The average cart abandonment rate is a staggering 70%, and two of the top four reasons customers give for ditching their purchases are the requirement to create an account and the checkout process is too long and complicated.
There have been 9,165 cases of cart abandonment recorded across the top 1 million eCommerce sites as of Sept. 9. Merchants have a strong incentive to reduce these cases, as recent research predicts that digital businesses with smooth customer journeys will earn 10% more in revenue than those with friction-laden experiences by next year.
Behavioral Analytics Tools Strengthen Identity Verification
These frictions may appear unavoidable, but technology is available that can keep fraud down while reducing false positives in a way that works in conjunction with current fraud detection systems. Behavioral analytics systems use “digital body language” to separate genuine customers from fraudulent ones by deducing user intent based on behavior.
The technology examines factors, such as typing speed and mouse movement, to determine if users are who they claim to be — not only flagging fraudsters with a high degree of accuracy but also providing executives with insights on how to improve their experiences for legitimate customers.
Behavioral analytics can identify the points in the checkout process at which consumers experience friction and abandon their carts out of frustration. Customer pain points could include anything from counterintuitive checkout flows to being forced to create an account before completing an order.
Even small adjustments to the functionality of a site can result in a significant increase in the rate of successful and profitable transactions. In one example, a company was able to reduce friction in a specific data field by 20%, cutting cart abandonment rates by 40%.
Using behavioral analytics can lead to a greater level of trust between merchants and their customers, both by increasing protection from bad actors and by reducing customers’ risk of being improperly categorized as a threat.
Digital verification is now a top priority for businesses, as consumers’ online habits established during the pandemic have become routine. Firms plan to increase investments in digital authentication solutions, with more than 40% looking to protect themselves and customers from growing security threats and nearly 42% aiming to improve the number of completed customer transactions.
Innovative verification solutions will be fundamental in gaining consumers’ trust and maintaining long-term, successful relationships with them. Behavioral analytics could be one key to increasing customer loyalty as well as attracting new customers.