Executive Education

Are Passwords The Best Way To Protect Your Customers Against Fraud?

Passwords have become part our everyday lives. They are just as important, if not more important, than the keys to our homes. Passwords give us access to socialize with our friends and family, handle banking needs, buy a new pair of shoes, listen to our favorite music and so much more. However, passwords may not be the safest way to protect our information nor the most convenient.

Recent research from our 2018 Global Fraud and Identity report found passwords are still the top form of authentication. Companies tend to use passwords because they are comfortable with them, and customers have come to accept their role. However, while passwords are familiar and well-understood, they come with nuisances and security risks. Businesses should start to incorporate other non-intrusive and probabilistic ways of recognition as an evolution of the authentication paradigm.

According to our data, more than a third of consumers surveyed (37 percent) only change their passwords less than once a year, while only 19 percent actually change their password at the recommended time. We also found that the majority of Internet users consistently use a small set of usernames and passwords to secure multiple different accounts; including social media, email and online shopping sites. Surprisingly, consumers average up to 26 online accounts protected by only five different passwords. This greatly increases the risk that fraudsters can use data stolen from one source to successfully access other accounts held by the same user.

Proper online security measures are vital in preventing data from being compromised. Fraud isn’t slowing down. In fact, it continues to grow. Our data shows that six out of 10 businesses are experiencing the same or more fraudulent losses online compared to a year ago, and fraud trends and patterns continue to grow across the globe. More than 70 percent of businesses we polled cited fraud as a growing concern. The truth is, businesses are continuing to struggle to address the moving target of fraud. So much so, that they have come to terms with acceptable levels of losses. Rising investment priorities for customer experience, even at the expense of security, have continued to play a part, along with new technologies and advancements that are not yet proven. In addition, most businesses are uncertain of how big of a fraud problem the business really has.

Passwords are also not as convenient as one may think. Our data shows that more than 25 percent of consumers have forgotten a username or password within the last six months. Forgetting passwords often drives consumers away from a site, resulting in a lost transaction, and possibly even lost revenue. For example, our research shows that the top three barriers consumers encounter when banking online is forgetting their username or password, being locked out for mistyping a password too many times, or having to answer secret or personal questions prior to access being granted. When passwords aren’t easily remembered, they cause unnecessary friction and frustration, and can do more harm to the customer experience. Instead, businesses need to find ways to deliver both security and convenience.

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There are ways to reduce fraud and to protect (and retain) your customers beyond the use of passwords. All it takes is a new way of thinking when it comes to your fraud-detection and prevention strategies. It may be time to modernize your customer-recognition or identity methods with the power of advanced data and technology to make the right fraud decisions. Though there’s no silver bullet when it comes to fraud protection, businesses should consider a multi-layered approach. Any method you consider should include data-driven, artificial-intelligence-powered systems, such as device intelligence or behavioral biometrics – proactive strategies that are designed to recognize customers while keeping their transactions stress-free.

Biometrics, for example, relies primarily on unique physical and behavioral characteristics including facial features and fingerprints for identification. It makes consumer verification virtually seamless. Biometrics removes the burden from the consumer to have to change passwords or alter security measures to protect their accounts. Moreover, according to a Visa survey, 70 percent of respondents find biometrics easier than passwords, and 61 percent consider it faster.

With the changing face of fraud attacks, industry leaders agree that a combination of fraud tools is the most successful strategy to safeguard information. Biometrics, combined with other fraud prevention tools, like CAPTCHA and two-factor authentication, provide a safe and convenient online experience. Businesses know this. Our research also found that three-quarters (75 percent) of businesses are interested in more advanced security measures and authentication processes that have little or no impact on the customer.

If you’re like more than half of today’s businesses, you acknowledge consumer preferences for passwords and still rely on passwords as your top form of authentication. You hesitate to disrupt the customer experience that you know is preferred, though increasingly you are aware that customer allegiance to passwords is actually compromising the very experience they perceive to be having using them. Using more advanced data and technologies can help businesses make the right fraud decisions, better protect our customers, while providing a better overall online experience.

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David Britton
David Britton, VP, Industry Solutions, Global ID and Fraud for Experian, In his current role, engages with executives across the eCommerce, Financial Services, Travel, and other verticals around the globe, to help frame strategies for mitigating fraud while preserving the consumer experience.

David Britton is an opinion columnist for the CEOWORLD magazine. You can follow him on LinkedIn.