May 19, 2022
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The advancements in modern technology have given many companies new channels to help business processes become more efficient. These new platforms have aided merchants in growing their enterprises by automating labor-intensive functions and helping to improve the supply chain. Integrating digital tools can also considerably scale operations, cushioning the blow of unforeseen events, like the arrival of the COVID-19 pandemic in 2020.
Moreover, the pivot to all things digital provides countless consumers worldwide an opportunity to complete essential tasks remotely through their devices. People can now engage with brands using a multitude of online applications. This paves the way for the development of financial technology (FinTech), which aims to provide people with additional options for servicing their financial needs.
The Rise of Digital Payments Platforms
For years, in-store payments have been the norm in the retail industry as they ensure that the transactions made are highly secure and the services are not being used for any illegal activities. However, innovations in FinTech led to the development of virtual payment platforms that provide customers with an alternative to making in-person payments with just a few clicks on their device.
The rising expectations for a seamless checkout experience forced enterprises to find ways to integrate interconnected and easy-to-use payment methods into their business operations. This is why various payment solutions, such as virtual wallets, digital currencies, and peer-to-peer payments, have become the trend in the financial industry in recent years. And experts predict that mobile payments will have a total valuation of almost $5 billion by 2025.
But even though online payment tools are being widely embraced because of their benefits, there are still concerns about their security. Cybercriminals continuously evolve their digital and social engineering strategies to exploit vulnerable online security measures. The increased reliance on the digital world, amid the global health crisis, has made it more attractive for fraudsters to attack industries that store large quantities of private personal and financial information on their servers.
This is why payment firms have continually sought ways to bolster their online security system. Various payment authentication methods were introduced to ensure that only legitimate clients can access and make transactions on an account. These real-time fraud prevention methods help mitigate the risk of data breaches, especially for complex industries like e-commerce, banking, and the crypto space.
Payment Authentication in E-Commerce
The e-commerce sector has grown exponentially as more people prefer to shop for various products and services online. The volume of e-commerce transactions increased by almost 34% in 2020, and is projected to rise as it continues to dominate the retail industry in the coming years.
Despite that, because of the enormous amount of confidential information stored in local and cloud-based servers, e-commerce companies are subject to constant attacks from criminals. It was projected that financial losses due to fraudulent activities in the industry will have surpassed $20 billion in 2021, an 18% increase from $17.5 billion in 2020.
This is why payment authentication solutions are essential for companies as they help fight voucher abuse, payment scams, and account takeover attempts. Governing bodies worldwide are also imposing specific guidelines to help companies set up their verification process in the checkout stage of the customer journey. One example is the European Union's PSD2 (2nd Payment Service Directive) which requires organizations in the region to implement multi-factor authentication (MFA) before any transaction is finalized to improve e-commerce fraud prevention.
Payment Authentication in the Banking Sector
As the traditional backbone of the financial industry, banks have long been a prime target for cybercriminals. Threats in digital banking security are continuously growing, with fraud attempts increasing by almost 160% in the first quarter of 2021, 83% of which occurred in online platforms like bank websites, applications, and digital wallets.
This has forced many banks to put up robust authentication measures to revamp their security methods. Financial institutions deal with billions, sometimes trillions, in assets and vast amounts of private personal information, which requires stringent security measures. That is why, for decades, banking institutions have been the leading investors in identity verification solutions, spending more than $1 billion per year.
The banking industry closely observes the Know Your Customer (KYC) authentication guidelines set by the Patriot Act of 2001 when verifying their clients. Following this regulation allows financial institutions to prevent illegal activities like money laundering, fraud, and other forms of financial crimes.
The Need for Crypto Payment Authentication
The past few years have seen the rapid growth of cryptocurrencies as more people invest in digital tokens worldwide. The trillion-dollar crypto industry is now one of the leading investment methods for countless people. The development of blockchain, the technology that runs the industry, has paved the way for the creation of other forms of virtual assets widely used for various purposes, including as a payment currency, the creation of smart contracts, and the NFT space.
Crypto tokens like Bitcoin are now being accepted by many companies as a form of payment. The use of digital assets to complete the checkout processes is considered more cost-effective and efficient for merchants because they do not need to go through banks or traditional payment networks as the industry is still relatively unregulated.
However, the decentralized nature of crypto is also why security is a serious issue within the industry. Investors can anonymously perform payment and money transfers without authenticating the sender's identity. Bad actors continually target investors and crypto exchanges, resulting in billions in losses every year.
Financial and reputational damage stemming from fraud are important reasons why authorities are eager to institute regulations to help secure the industry. Crypto exchanges and digital wallets can get ahead of regulations and help mitigate the risk of crypto fraud by requiring payment authentication in the form of a biometric digital signature for any crypto transaction.
Trends in Payment Authentication
The increasing number of fraud incidents has led to the development of payment security technology and statutes worldwide. One of the guidelines under PSD2, Strong Customer Authentication (SCA), requires financial institutions to utilize multi-factor authentication (MFA), consisting of three independent elements. These elements consist of knowledge factors (knowledge-based credentials like passwords), possession factors ( device ownership), and inherence factors (the use of biometrics).
Moreover, biometric authentication is currently one of the leading forms of authentication in various sectors because of its reliability and ease of use. Scanners are now widely used in most devices to verify a person's face, iris, voice, and fingerprints. People have become more familiar with biometric technology as it overtakes knowledge-based credentials in the identity verification and passwordless authentication industry.
The Future of Payment Authentication
As e-commerce and digital banking continue to grow, integrating robust payment authentication services has become a necessity to combat ambitious cybercriminals. It helps decrease the risk of financial losses, especially in an industry that relies on strong customer relationships. It can also significantly boost the security of crypto payments.
Adopting PSD2's SCA guidelines will help set up a high degree of protection for online transactions. Also, biometrics are becoming the norm across industries, which is a necessary step toward a more secure passwordless society.
LoginID's FIDO2 passwordless authentication solution is highly secure, simple to integrate, and reduces onboarding friction. They offer a highly secure payment authentication tool that enables online transactions to be digitally signed using biometrics, ensuring the identity of the transactor.