Today’s rapidly evolving payments and financial landscape brings with it both challenges and opportunities.
And the challenges and opportunities center around effective authentication, as the need for advanced security measures to keep pace with the evolving payment methods and fraud tactics becomes an imperative.
That’s what Gerhard Oosthuizen, chief technology officer at Entersekt, told PYMNTS for the “What’s Next in Payments” series, explaining that innovations in faster payments, open payments, digital identity and artificial intelligence (AI) are driving changes that firms need to stay ahead of.
Oosthuizen underscored the global proliferation of faster payments systems as a driver of change in payment authentication. Countries like Brazil and India have already seen success, while the U.S. recently launched its own faster payments infrastructure.
With the rise of faster payments, and the concept of open payments, comes an increase in sophisticated fraud patterns, such as authorized push payment (APP) fraud. Oosthuizen highlighted the need for enhanced fraud prevention strategies, leveraging more signals and integrating across channels to detect and prevent fraudulent activities effectively.
This shift necessitates new forms of authentication to ensure security without compromising user experience or causing customer confusion. “Creating a consistent journey while protecting the customer” is crucial, Oosthuizen noted, saying that, “There’s no more excuse for bad user journeys. … If I’ve had a bad payments experience with a certain rail or form of payment, then I won’t use that.”
In light of ongoing marketplace innovation, the importance of a smooth and consistent user experience in payment authentication cannot be overstated.
“There’s a lot of hope that these new payments are going to suddenly get the ball rolling to create new revenue streams and new opportunities, but it is important to get the customer journey right. You can’t just stick the old [authentication] thing on top of the new payments,” said Oosthuizen.
He added, “If a customer is used to a certain journey on [a] card payment,” they will expect a similar journey across emerging payment modalities. “The customer doesn’t care how the money flows; they just want a consistent experience.”
That’s why it’s crucial to ensure that authentication processes are intuitive and align with customer expectations. And as Oosthuizen stressed, fraud prevention should not be an afterthought, but a core element integrated into the authentication process from the start.
“The last thing you want is three different fraud pockets, as well as three different authentication pockets, and you can’t integrate between them,” he said. “Bad actors are going to jump across channels, and [financial institutions] need to do that as well. … The customer isn’t just a card payment, the customer has a number of events, and tying those events together to create a consistent and secure experience” is crucial.
Digital identity is also poised to revolutionize payment authentication. Initiatives like Europe’s eiDAS 2.0 regulation, which mandates banks to accept government-issued digital identities, exemplify this shift. Oosthuizen highlighted that by integrating digital identity into payment authentication, organizations can streamline processes and enhance security by verifying the right person and intent behind transactions.
“Blending payments with digital identity; I think that’s where there’s going to be some real innovation,” he said.
Social engineering fraud, where attackers manipulate individuals into divulging confidential information, is a growing concern. By understanding typical user behaviors and interactions, banks can better detect anomalies and prevent fraud.
Against that backdrop, contemporary innovations like AI are set to play significant roles in the future of financial authentication. AI can provide real-time guidance and warnings during transactions, enhancing security and user confidence. For example, as Oosthuizen said, AI-driven alerts on devices can warn users about potential scams during a phone call, a concept recently demonstrated by Google.
Oosthuizen also highlighted the importance of collaboration among banks to combat fraud, especially APP fraud. Sharing data and insights can provide a broader perspective on fraudulent activities, enabling banks to identify and prevent fraud more effectively. Such collaborations can create shared platforms for mutual benefit, enhancing security across the financial ecosystem.
“In the past, people have tried to go at this alone. … Now they’re realizing they need a bigger perspective,” he said. “There’s been this emergence of a lot of people trying to create consortiums.”
As the payment landscape evolves, so, too, must methods of authentication. Looking ahead to the future of financial authentication, Oosthuizen stressed that it lies in balancing security and user experience. Opportunities include the integration of digital identity into existing payment systems, leveraging AI for real-time fraud detection, and fostering industrywide collaborations.
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