In the great digital shift, the mobile device is the point of sale — especially in Asia’s fast-growing markets.
In a Masterclass interview with PYMNTS, Tom Donlea, vice president and general manager, APAC at global identity verification provider Ekata, said Asia offers greenfield opportunities — and some areas of risk — for merchants looking to offer digital wallets.
The conversation came against a backdrop where online transaction volumes and mobile wallet adoption are increasing. But as merchants and issuers look to enter new markets, including the Asia Pacific region (APAC), they must be mindful of the challenges posed by fraudsters.
Donlea noted that mobile wallets are designed for consumer and brand loyalty. And in Asia especially, amid the battle of the super-apps, the goal is to drive as much activity through those apps and mobile wallets as possible, through QR payments in shops, lending, ride-hailing and food delivery (to name just a few use cases).
For the firms that get it right, the opportunity within APAC is significant. China and India alone account for roughly half of the globe’s smartphone-using population. And as Donlea noted to PYMNTS, seven of 10 adults in southeast Asia are unbanked or underbanked, and mobile wallets can broaden financial inclusion.
In Malaysia, for example, the government has set aside the equivalent of $108 million USD to spur small businesses and retailers to accept digital payments — and gave millions of individuals one-off incentives to spend via digital wallets. Singapore, Donlea added, has a forward-thinking government in place that is friendly toward commercially oriented technology and is eager to attract global investments (and has narrowed down finalists for five digital banking licenses).
At a high level, beyond market-specific data points, said Donlea, there are a few notable trends tied to digital commerce that have been shaped by the pandemic. Consumer behavior itself has changed, he noted, with a years-long digital transformation compressed into the span of just a few months.
The percentage of total sales that occurred online in the U.S. alone shifted from 15 percent to 25 percent in a matter of weeks. At the same time, online businesses actually invested less in fraud prevention tools as their general budgets tightened due to external pressures.
“Every recession leads to an increase in fraud,” he said. “People are desperate. And they also know that companies have fewer resources to defend themselves against fraud.”
The current environment has led to some unusual challenges, as financial institutions (FIs) and merchants across all verticals are seeing unusual buying patterns amid a surge of new account creation, as people move to online channels to buy even the most basic goods. Ekata, he said, saw some online retailers tally months’ worth of daily volume at the equivalent of Black Friday volume.
But speed bumps loom, too. “The folks who fight crime tend to use historical patterns to detect fraud and train their models," said Donlea. "Machine learning models are training on historical data as well. There are no historical patterns to model the behavior during these times. So it takes a long time to get the outcomes as to what’s fraud and what isn't."
As always, making sure that users are legitimate (and that they are who they say they are) is key in building any payments ecosystem. Donlea noted that some of the initial processes of equipping consumers in Asia with mobile wallets will seem familiar.
As Donlea told PYMNTS, onboarding for eWallets will resemble what is in place for other payment methods that are used for digital transactions.
“If you’re signing up for a credit card with an issuer or choosing a buy now, pay later point of sale lender, the consumer needs to provide enough proof of their identity so that the wallet can admit them into their ecosystem," he explained. Companies also need to satisfy the requisite anti-money laundering (AML) and know your customer (KYC) compliance checks, which can vary from market to market.
Traditional wallets in the APAC region market have relied on two-factor authentication or one-time passwords. Those lines of defense can indeed be effective, said Donlea, “as long as details in that consumer's account have not already been changed through an account takeover.”
There’s no single magic bullet to stop the increasingly sophisticated (and relentless) attacks by criminals on digital commerce.
The strategy for protecting mobile wallets is the same for eCommerce merchants, online travel marketplaces and other web-based businesses, contended Donlea: When it comes to fraud prevention, layering different types of data and utilizing a combination of fraud rules and machine learning models — complemented by a feedback loop from manual review agents — can offer the most robust lines of defense.
For example, many mobile wallet issuers are implementing selfie checks at the point of onboarding to ensure that an actual human being — and not just a bot — is creating an account.
“The smartest and most effective companies find ways to leverage internal resources and external vendors for cost-effective solutions that result in the appropriate fraud levels for their business risk tolerance," Donlea told PYMNTS. "As the old saying goes, 'you don’t bring a knife to a gunfight.'" Yet, he noted that many of the up-and-coming wallet providers and merchants do not yet use best-in-class methods and products in the service of identity verification.
“When merchants are accepting new forms of payment, they are often dealing with less information about that particular consumer and the potential risk associated with them,” he noted. Merchants feel the downstream effects of poorly designed customer onboarding verification by the wallets.
Robust, layered verification approaches are especially critical amid a fragmented regulatory landscape, said Donlea, where so much data on individuals in Asia is “mobile-centric” in nature and where the mobile device itself may be the key indicator of legitimate identity.
“Ultimately, digitally-savvy businesses strike a balance between friction and freedom at the moment of transacting or setting up a new account,” Donlea said, adding that “most consumers prefer zero friction, but they also ultimately want to be safe, and they know that eWallets are playing safely with their identity details, their bank account information and other payment credentials.”
In these early days, the wallet providers targeting APAC will almost exclusively focus on consumer adoption. This means heavy advertising promotions and less emphasis on additional identity verification beyond KYC or AML compliance checks.
But as fraud looms or false positives accumulate — indicating that good customers have been rejected — firms will look for help from verification solution providers. Examining a range of identity elements — such as name, IP address, physical address and email — can help provide insight into new customers entering an eWallet ecosystem.
As Donlea told PYMNTS, “The wallets are expanding globally, and they present a unique challenge for businesses accepting payments with this form. They’re going to want to make this experience frictionless for consumers, while at the same time covering their own fraud and risk concerns. Using dynamic identity verification will make the expansion much safer and more scalable.”