The digital landscape has undergone a seismic shift, with research showing nearly one-fifth of all retail transactions now occur online. This trend, fuelled by the COVID pandemic, has created a fertile ground for sophisticated fraudsters to exploit.
As artificial intelligence (AI) continues to evolve, these cybercriminals are becoming increasingly adept at using identity as a gateway to impersonate users, infiltrate networks, and wreak havoc on retailers and their customers.
Ecommerce fraud is on the rise, characterised by its growing sophistication, speed, and authenticity. The line between genuine and fraudulent activity is blurring, making it difficult for consumers to discern the real from the fake.
It’s a trend that shows no signs of abating, with nearly half of industry leaders anticipating a surge in identity threats fuelled by AI in the coming year.
In the face of such a formidable challenge, the question remains: Is preventing retail fraud truly feasible in the age of AI? The answer lies in taking a strategic approach that leverages advancing technology for good while implementing robust identity management solutions.
Harnessing AI for benefit
AI is a double-edged sword, capable of both facilitating fraud and preventing it, and retailers must ensure they are using the technology judiciously, and proactively, to keep pace.
Machine learning (ML) and AI can rapidly analyse vast datasets, identifying anomalous patterns in user behaviour that may indicate fraudulent activity. While manual monitoring remains valuable, AI can serve as a powerful tool for detecting subtle anomalies that may escape human notice.
Building customer trust
Customer loyalty requires a feeling of trust and security, while also having a simple and smooth experience, and it’s on retailers to strike the right balance. The ‘Keep Me Signed In’ feature has proven to be a powerful tool for enhancing customer convenience and increasing conversion rates.
However, retailers must also implement threat protection signals that continuously monitor user behaviour for signs of risk, allowing them to extend sessions for legitimate users while mitigating the risk of fraudulent activity.
Embracing password-less authentication
Passwords, once considered a formidable defence against fraud, are now increasingly vulnerable to compromise. The dark web is filled with stolen credentials, making traditional password-based authentication a weak link in the security chain. Retailers must transition to password-less authentication methods, such as biometrics, to enhance security and improve the customer experience.
The benefits of decentralised identity
Another strategy that can help to reduce fraud is the use of Decentralised Identity (DCI). This empowers customers to control their personal data, offering a more secure and privacy-preserving approach to identity management.
Retailers can gradually adopt DCI strategies, starting with loyalty programs, coupons, and multi-brand environments. By embracing DCI, retailers can not only enhance security but also position themselves to comply with emerging regulatory requirements.
The potential of behavioural biometrics
Beyond traditional biometrics like fingerprints and facial recognition, behavioural biometrics offer a more subtle and effective way to detect fraud.
By analysing patterns in user behaviour, such as typing speed, mouse movements, and device interactions, retailers can identify anomalies that may indicate a compromised account. Steps can then be taken to terminate the user and prevent further future access.
The challenges of AI-driven fraud prevention
While AI offers significant benefits in combating fraud, it also presents challenges. False positives can lead to legitimate customers being mistakenly flagged as fraudulent, damaging their trust and experience.
Retailers must invest in AI systems that are trained on high-quality data and continuously refined to minimise such false positives.
Also, despite the advancements in AI, the human element remains crucial in fraud prevention. Human analysts can provide context and judgment that AI may lack, particularly in cases involving complex or unusual fraud patterns. A collaborative approach, combining AI with human expertise, can yield the most effective results.
The future of fraud prevention
As AI continues to evolve, so too will the tactics employed by fraudsters. Retailers must stay ahead of the curve by investing in ongoing research and development to identify emerging threats and develop countermeasures.
Preventing retail fraud in the era of AI requires a multifaceted approach that combines advanced technologies with robust identity management strategies.
By leveraging AI for good, implementing invisible risk signals, embracing password-less authentication, adopting decentralised identity, and incorporating behavioural biometrics, retailers can mitigate the threats posed by sophisticated fraudsters and create a more secure and trustworthy online shopping experience for their customers.
Ashley Diffey is vice president of Australia and New Zealand at Ping Identity.