Friction or Fraud: Optimizing the User Experience in the Digital Age

As companies work tirelessly to serve their customers, criminals work to exploit vulnerabilities in the digital product lifecycle. That threat necessitates friction points so companies can ensure that their services are delivered safely and securely. Too much friction, however, drives away customers.

In a recent PaymentsJournal webinar, Ramesh Menon, Group Head of Product Management, Digital Identity & Fraud at LSEG Risk Intelligence, and Kevin Libby, Analyst, Fraud & Security at Javelin Strategy and Research, discussed the delicate balancing act of optimizing the user experience while introducing friction.

Differentiators in a Digital Paradigm

Menon says that we’ve entered a time when 40% of Americans are using peer-to-peer services at least once a month. “According to Consumer Reports, 53% of Americans use digital wallets more than traditional payments, and almost 80% of Americans use their mobile device to manage their bank account,” he said.

The demand for digital products means an effective online and mobile experience is essential for any product. The utmost priority is to have an optimized onboarding process that allows for quick decisioning.

“I can build the absolute best digital product or solution, but if my onboarding process is so clunky that most users give up, my product never reaches its potential,” Menon said.

Many companies try to replicate a non-digital experience, such as a visit to a brick-and-mortar retailer, in the digital world. While that’s nearly impossible to pull off, the digital experience offers a unique set of opportunities.

“In essence,” Libby said, “the proliferation of digital channel transactions has leveled the playing field for institutions and companies. Proximity to one’s home or business, the availability of staffing, the aesthetic of the physical environment in customer-facing spaces, none of these things remain relevant differentiators in a digital paradigm.”

Speed vs. Security

In the digital age, it boils down to balancing security, gained through effective identity verification and authentication protocols, with a nearly frictionless experience that results in fast and easy transactions.

“Expectations about speed in decisioning, funding, and titling have fundamentally changed,” Menon said. “The flip side of the coin is that consumers are also expecting higher levels of safety and security. Though they may not be conducting in-person interactions, they’re expecting that same level of security in remote interactions.”

Generational differences are also forcing paradigm shifts. Millennials outspent Baby Boomers by roughly 10% in 2021, and their digital preferences are far different. It has become incumbent on companies to tailor their experiences. Convenience, speed, and ease are key for younger generations because those consumers are much more acclimated to digital technology. “They want an experience where they know what they want to do, where to go, and how to get it done with no interruptions,” Libby said.

Creating a Forgettable Experience

More organizations are betting on the customer experience, spending millions of dollars to acquire customers. If the customer experience during onboarding isn’t optimal, a lot of that money goes to waste. “Surveys have shown that 73% of consumers say that customer experience is a very important factor in their purchase decision,” Menon said.

If customers’ needs aren’t met, little stops them from going somewhere else. Businesses that create too much friction in the user experience will lose consumers and the efficacy of business over time. Often, those losses are measured in terms of lifetime value.

On the other hand, many companies overreach in their quest to please customers. A company’s mission should be to provide a user experience that is as seamless and easy as possible while maintaining adequate and appropriate friction.

“You want to create forgettable experience,” Libby said. “If your consumer is walking away thinking about all the things that went wrong, you risk them going somewhere else. Whereas if they leave and are not even thinking about what happened, they got what they were after.”

Less Time to React

With speed and convenience come a price. According to Menon, the price is that faster payments mean the criminals reap ill-gotten gains faster, too.

Bad actors can also set up schemes against multiple targets at once, and more money can be misdirected before the crime is discovered. Organizations have less time to react to fraud patterns, making it critical to engage solutions that can identify and stop the emerging types of fraud.

“Criminals only need one vulnerability they can exploit in order to succeed in their mission,” Libby said. “Companies have to protect against all vulnerabilities and all attack factors.”

The Battle Never Stops

Ultimately, the way organizations can balance friction is to take the burden on the back end and save the customer from that aspect of it. “Doing as much transparent data collection and analysis as you can in ways where the consumer doesn’t even have to be involved,” Libby said.

Robust datasets acquired from a variety of sources should be incorporated into machine learning and artificial intelligence, assisting modeling and automated real-time decisioning. Companies should also employ dynamic, multilayered testing of a number of identity parameters.

“It’s really easy for criminals to get around any one or two parameters using artificial intelligence or even traditional fraud models,” Libby said. “It’s harder for them to get around a well-designed system that tests a variety of parameters.”

Libby’s biggest takeaway was to introduce friction only when there’s a need to do so. Companies need to successfully balance a strong user experience with strong identity proofing.

Menon highlighted three takeaways, the first of which is variety. Preventing fraud and staying compliant with regulations mean relying on a variety of techniques to avoid unneeded friction. Companies should also choose solutions that have the breadth to stop not only today’s financial crimes but also tomorrow’s.

Second, organizations need to look beyond traditional techniques like micro deposits or credit header ID verifications. Richer data signals are required to combat fraud, especially the new forms that are driven by AI.

“And number three: The battle never stops,” Menon said.

Faster Payments, Rising Risks

Because of the ongoing battle against fraud, companies like LSEG Risk Intelligence have designed an array of adaptive solutions. The company recently published a white paper titled Faster Payments, Rising Risks to take an in-depth look at friction and fraud.

“It’s about addressing new payment fraud threats and evolving customer expectations in the digital payments era,” Menon said. “And showing customers how our industry-leading risk screening and due diligence solutions protect the customer in conjunction with our digital onboarding suite.”