Why is Identity Verification Important for Online Retailers?

Over the last year, e-commerce has boomed. The pandemic drove a significant increase in online sales as consumers stayed home. Many people shopped for essentials, used online grocery services or ordered food via delivery apps more often or for the first time. According to the UN, almost one in five (19%) retail sales is now online worldwide, while in the UK this figure stands at more than 23%. 

During the same period, high street retailers were forced to adapt. As non-essential companies were ordered to shut their doors temporarily, businesses found creative ways to keep trading, with many opening online stores. However, retailers weren’t the only ones to move quickly. Fraudsters didn’t waste any time exploiting weaknesses resulting from this rapid shift and period of uncertainty. 

At GBG, we found that fraudsters adapted swiftly, advancing their capabilities and targeting online transactions more aggressively. In particular, fraudsters made greater use of phishing, identity theft, and ransomware attacks to target businesses and consumers transacting online. 

Faced with the increasing scale of identity fraud, the e-commerce sector has had to double down on its efforts to ensure that transactions are secure and customers are genuine. While also complying with anti-fraud regulations like Know Your Customer (KYC) and Anti-Money Laundering (AML). In many cases, this has meant making greater use of identity verification services to authenticate new customers, protect existing customers from account takeovers and prevent fraudulent transactions. 

However, retailers must also consider the customer experience. Consumers expect shopping online to be quick, easy and secure. If the verification process takes too long or requires too many steps it can drive up the cart abandonment rate. It’s therefore very important for retailers to get the balance right between preventing identity fraud and delivering a streamlined customer experience. 

What is Identity Verification? 

At a simple level, identity verification is the process of checking that a person is really who they say they are, to prevent imposters from committing fraud. In e-commerce, identity verification methods typically use personal information, such as a telephone number or postal address to check and verify the identity of shoppers using data from a range of sources, such as banks and building societies. 

Contextual data, such as IP addresses and device information are also used to verify the identity of existing customers. For instance, by requiring extra ID checks when a shopper’s account is accessed from a new device or location. Often, shoppers will be asked to provide proof of identity. This could be by typing in a unique security code sent to a known and verified e-mail address or mobile device.  

As well as this, there are several other important moments when online stores may be required to verify a customer’s identity. Some of the most common include when shoppers open an account, make a high-value purchase or attempt to buy age-restricted products, such as alcohol. 

Why is Identity Verification Important for Online Retailers?  

The e-commerce sector is a top target for fraudsters, who are increasingly using false or stolen identities to target online transactions. Threats include payment card fraud, account takeovers, and phishing attacks, where fraudsters impersonate retailer messages to access shoppers’ accounts.   

It’s no surprise that many consumers don’t feel safe shopping online. Around a third of consumers believe their personal information has already been stolen, while many more are concerned that it could be exposed while shopping online, according to the GBG State of Digital Identity 2020 report. 

Digital identity verification is an important part of retailers’ arsenal in the fight against identity fraud, making it possible to quickly spot and stop fraudsters in their tracks while delivering the frictionless experience that customers demand when making purchases online or via mobile apps. 

Combating the Evolving Threat of Digital Identity Fraud 

In 2021, fraudsters are deploying a wider range of increasingly advanced tactics, leaving retailers feeling unprepared and exposed. Many online stories are concerned by fast-growing threats such as synthetic identity fraud, which combines real and fake customer information to build a new identity. 

To ensure that customers and transactions are always protected, online retailers must evolve their approach. Greater use of real-time data and machine learning can help businesses that trade online to combat indent fraud at scale while ensuring that an optimal customer experience is delivered.