Are truly frictionless payments a pipe dream?

Gone are the days of signing for a payment – even entering a pin number can prompt exasperated eyerolls from consumers accustomed to completing transactions with a single tap. That expectation has now made its way online, with Open Banking making it increasingly possible to pay without entering card details. But with authorised push payment (APP) fraud on the rise, is a bit of friction simply the price we must pay to prevent fraud? 

As the go-to method for a wide array of scams, the growth of APP fraud has been steep. Globally, this type of fraud represents 75% of all digital banking fraud in dollar value, and the losses in the US, UK, and India are expected to double, reaching $5.25bn by 2026.

Although the financial services sector is at the forefront of efforts to protect customers from fraud, including partnering with other sectors, governmental bodies, and law enforcement, part of that protection may inevitably mean retaining, or introducing, a level of friction. 

There are several ways merchants and processors can protect the consumer against malicious actors. Effective methods include multi-factor authentication (MFA), 3D Secure (3DS) authentication, and Address Verification Service (AVS). But these add a level of friction that consumers are increasingly put off by, ultimately leading to an increased number of abandoned purchases.

One survey of consumers in the UK shows a large majority (88%) are prepared to abandon a transaction if faced with friction, with speed and convenience among the chief expectations. More than three quarters (77%) now expect payments to be instantaneous, and over half (58%) expect online payments to be completed with just one click.

The impact of significant payment friction

When friction in the payments process is deemed excessive, there are a range of negative knock-on effects for both consumers and businesses. As well as consumers being more likely to abandon their shopping carts – reducing conversion rates and sales – over time, they may switch to competitors with smoother experiences. It’s the unfortunate truth: an overly complex payment processes can harm a brand’s reputation due to its strong influence on overall user experience.

For businesses with international customers, excessive friction in dealing with different currencies, payment methods, or regulations can particularly hamper sales in foreign markets. And while payment security should always be a priority for businesses, overly aggressive fraud prevention measures can flag legitimate transactions as suspicious, causing unnecessary declines.

There’s a fine line between convenience and security, so can the industry walk it to provide the convenience consumers want and the security they need?

Strategies to balance privacy and convenience

It is possible to balance payment convenience with security, and achieving this balance is crucial for creating an optimal customer experience.

One approach is to implement adaptive security measures. Using adaptive or risk-based authentication means the level of security required can be adjusted based on the risk profile of the transaction. Similarly, employing behavioural analytics, which monitor user behaviour patterns in real-time, can prompt additional security checks without affecting regular transactions.

In recent years, we’ve also seen how AI and machine learning can be leveraged to automate fraud detection in real-time and customise the security experience based on user behaviour, so regular customers with consistent patterns face fewer obstacles, while anomalies trigger additional security measures.

Another option is to streamline existing authentication processes. For example, single sign-on (SSO) solutions that allow customers to log in once and access multiple services securely, reducing the friction of multiple logins while maintaining strong security protocols.

An increasingly popular way to streamline payments is with biometric authentication, which provides strong security with minimal inconvenience to the user. More than 1.2 billion people worldwide have used biometric authentication, and the use of biometric systems in ecommerce are thought to reduce fraud by up to 90%.

It’s also advisable to utilise tokenisation and encryption. By securely tokenising payment data, customers don’t have to re-enter their payment information for repeat transactions. Meanwhile, end-to-end encryption will ensure all sensitive data is encrypted from the moment it is entered by the customer until it is processed, protecting the data without requiring extra steps from the user.

All this said, it’s worth remembering that many consumers will accept a bit of friction in return for the flexibility of seeing a range of payment methods at checkout. Providing customers with everything from credit cards to digital wallets and bank transfers means that can choose the method they find most convenient.

As a first step, I recommend partnering with a secure payment gateway provider. Using a hosted payment gateways will redirect customers to a secure, third-party site for payments, reducing the merchant’s exposure to sensitive data.

It’s easy to see how excessive friction in payments can lead to reduced revenue, increased costs, and damaged customer relationships, but businesses have a responsibility to protect their customers’ privacy. It’s therefore crucial for businesses to think about how they can streamline their payment processes as much as possible, without compromising security.