Online marketplaces are growing exponentially. In the U.S. alone, online marketplace sales are projected to more than double and reach $40 billion annually by 2022, according to Coresight Research and Juniper Research. While this growth and market maturity is positive for retailers looking to increase profits and expand their customer base, it also means growth in online fraudulent activity.
In fact, nearly 60 million Americans have been affected by identity theft, according to a 2018 survey from The Harris Poll. This is especially relevant in online marketplaces, where cyber criminals create fake “identities” or accounts to sell non-existent goods and services with the main goal of stealing credit card and personal information for their own illegal use. Using these stolen identities, fraudsters launder money under the guise of online purchases until the fraud is detected. While large online marketplaces, such as eBay, Airbnb and OfferUp, have teams dedicated to identifying fraudulent activity and working with customers to win back their trust and loyalty, fraudsters continue to develop new and sophisticated methods for stealing consumers’ personal identifiable information (PII) year after year. In fact, according to Research and Markets report, of all online payment fraud, over 60% of the total instances are channeled through e-commerce transactions.
So, what more can online marketplaces do to build customer trust and lessen fraudulent activity in digital shopping channels? One solution— identity verification.
Using AI and Machine Learning to Identity Fraudsters
Identity verification technology adds another layer of trust and security for both the retailer and consumer. Automated through artificial intelligence (AI) and analyzed in real time through machine learning, identity verification solutions validate that the ID document presented in an online transaction is authentic, unaltered, and government issued. Serving as a second layer for identity proofing, it uses sophisticated face comparison algorithms to automatically compare the portrait extracted from the ID document with a selfie to prove that the person submitting the ID document is its rightful owner. This enables online enterprises to onboard and process more good customers, while identifying potential fraudsters who aren’t who they claim to be in an online setting.
Identity verification technology is particularly valuable to online marketplaces like Uber, Lyft, Airbnb, and Instacart who hire employees digitally to provide in-person services to consumers. In doing that, consumers have an expectation of trust in who they are inviting into their home, having drive them to their next destination or delivering their groceries.
Identity Verification as a Competitive Differentiator
When it comes to online marketplaces, identity verification is no longer a nice-to-have, but a need-to-have. In fact, it’s likely that fraudsters who are prompted to prove their identity digitally will be more prone discontinue an illegal activity than if they aren’t. In addition, a recently conducted study on consumer confidence in digital channels found that 91% of Americans are more likely to do business with in-home services, such as dog walking, home repair or childcare, that validate identity before inviting someone into their home.
Making consumer trust a priority
As companies continue to grow their digital channel, those that make identity proofing a part of their workflow are the ones that will benefit from greater consumer loyalty and improved brand reputation. For marketplace vendors, identity verification adds the necessary layer of trust and security that helps establish brand credibility. On top of that, this additional step can also dramatically reduce fraud by scaring off potential fraudsters who are deterred by the need to prove their identity.
And from the consumer standpoint, even in the era of instant gratification, consumers are willing to take an extra step online in favor of trust. According to the same consumer survey, 67% of respondents said they are more likely to do business using a website that could guarantee that a person is who they claim to be. Because of the convergence of digital transactions, increasing fraud and brand reputation, it is not surprising that identity verification technology will play an increasingly bigger role in online marketplaces in 2019 and beyond.
Michael Nelson is VP of Identity for the North American territory at Mitek. As one of the founders of Mitek's Identity business Mike is a seasoned expert in Identity and fraud technologies. Mike is most recognized for his experience in achieving product-market fit for cloud/AI technology solutions such as Adobe, Ariba and others.