Embedded Authentication Could Accelerate Digital Payments

As we move fast and furiously into a digitally connected economy, payments modernization is essential.

After all, how businesses and consumers pay, and get paid, is central to defining the future of both commerce and daily life. That’s why the modernization of payment systems is not just a convenience — it’s an imperative.

Yet that imperative is not without its own challenges, and one of the primary hurdles in modernizing payments lies in addressing the consumer demand for diverse payment options.

“Consumers want more choice in how they pay,” Rodger Desai, CEO of Prove Identity told PYMNTS CEO Karen Webster for the series “What’s Next in Payments: Payments Modernization.”

From buy now, pay later services to various credit and debit options, the plethora of choices reflects a fundamental shift in consumer expectations.

However, as Desai explained, with this surge in variety comes the subsequent challenge of managing and integrating these options seamlessly. He stressed that the path forward involves not just adopting new technologies but fundamentally rethinking how to best approach the authentication and transaction security that new payments entail.

“There’s still about a thousand basis point difference between card present and card not present acceptance rates,” Desai added.

And this problem, where legitimate transactions are erroneously rejected, undermines consumer trust and merchant revenue. “Solving the false decline problem is critical,” he emphasized.

Multifaceted Challenge

Modernizing payments is not just about deploying new technologies; it requires a cultural shift in how these technologies are perceived and implemented.

Referencing Henry Ford’s quote that, “If you ask the consumer what they wanted, they would say faster horses,” Desai explained that hewing to the outdated belief that past consumer behaviors can predict future transactions is slowing down payments modernization.

“The world needs to move away from risk-based authentication (RBA), which is probabilistic, and adopt a deterministic approach based on keys bound to identities,” he argued.

This shift toward a deterministic model involves using robust authentication methods, such as EMV chips and SIM cards, which can provide higher confidence in transaction legitimacy.

Desai highlighted the success of such technologies in the telecommunications industry, where SIM cards ensure seamless and accurate billing even when users travel internationally. By embedding similar authentication events into payment processes, the financial sector can achieve a frictionless and secure experience for consumers.

“Combining identities with keys, such as SIM cards and passkeys, can provide the confidence needed for secure transactions,” Desai said.

Future of Distributed Commerce

As commerce continues to evolve, with transactions occurring across a multitude of connected devices and platforms, the principles of modern payments must adapt.

Desai envisaged a future where voice commands, biometrics, and other natural identifiers could facilitate transactions, provided they are backed by strong authentication mechanisms. “The key is to authenticate the identifier securely,” he said, underscoring the importance of managing biometric data carefully due to its non-revocable nature.

The journey toward payments modernization is complex, requiring technological innovation, cultural shifts, and strategic prioritization.

Setting priorities in payments modernization requires striking a compelling and scalable balance between security and user experience. Desai suggested that embedding authentication into the transaction flow, rather than relying on cumbersome user interventions, could provide a seamless yet secure experience.

“We shouldn’t ask consumers to involve themselves in the security process. It’s obviously cumbersome. They can get it wrong. It can be socially engineered, and sometimes the legitimate consumers can’t even do it,” he said. “KYC [know your customer] only asks you to make sure the name, address, social, date of birth all go together. Well, that’s pretty easy to fool.”

The potential benefits of removing the consumer from the security process in such a way are immense. For instance, authenticated transactions could enable dynamic offers and personalized financial products, enhancing competition and consumer choice.

Desai described scenarios where preapproved credit could be seamlessly applied during a purchase, providing savings and convenience for consumers. “Authentication allows you to create these new types of opportunities.”

By embracing a fundamental rethink of how authentication and transaction security are approached, payments stakeholders can unlock the potential of the digital economy and create a payments experience that benefits everyone.