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Reflecting on insights from Money 20/20 Amsterdam, it appears that the 'holy grail' in payment systems is to simultaneously reduce friction and fraud, offering a seamless authentication process that does not sacrifice security. Traditionally, a secure solution was often associated with complexity, adding user friction—something consumers tend to avoid. Similarly, reducing friction typically opened doors to increased fraud, presenting a dilemma where one seemingly had to choose between convenience and security. This dichotomy has posed challenges for businesses and kept that sought after ‘holy grail’ far out of reach.
In the wake of the expansion of the Internet in the late 1990s, e-commerce has gained traction. Payment cards are transitioning from primarily being used in physical stores—with cardholders present, known as Card Present or Point of Sale (POS) transactions—to increasingly supporting remote purchases, referred to as Card Not Present (CNP) transactions. E-commerce has continued to expand rapidly, now accounting for an estimated 14.4% of global commerce. Concurrently with the rise of e-commerce, there has been a shift towards more secure EMV chip technology for in-store, Card Present transactions, while initiatives like 3D Secure were developed to secure online, CNP transactions. However, possibly due to the need to balance user friction and security, some e-merchants, particularly in the U.S., have hesitated to adopt the original version of 3D Secure. This may explain why we see fraudsters increasingly targeting online, CNP transactions today. This has had a huge impact, evidenced in the staggering 73% of all U.S. card fraud last year that originated from online purchases, a significant rise from 57% in 2019.
However, emerging innovations in payments could bring us closer to that illusive 'holy grail.' We see businesses merging the familiar and trusted physical card with the interactivity and real-time capabilities of smartphones to enable groundbreaking solutions. An example of this is the recent rise in numberless cards, where the 16-digit card number, or PAN, and the expiry date are not printed on the card’s front side but accessed via an app. Removing these details from the physical card's surface allows for more creative designs, transforming the card into a fashionable accessory that helps card issuers achieve that sought after top of wallet status. Another innovation in payment technology is evidenced by the way that a physical card can now be tapped against a smartphone to activate the card upon receipt, sidestepping the need for a call center call or an ATM visit to activate the card. These innovations are ways that the card itself can be leveraged “beyond just paying”.
The blending of physical cards with digital technology could also help to resolve the dichotomy between fraud and friction and introduce a novel approach to reducing CNP fraud. Put yourself in the shoes of the user, shopping online on your smartphone, looking to purchase sneakers. Now, imagine if you could authenticate yourself by simply tapping your payment card against your phone. Suddenly, for online, Card NOT Present, purchases, your physical card is "present" for authentication. This method marries convenience with robust fraud prevention, potentially transforming online shopping and making the card even more important to the cardholder. This integration could indeed achieve the 'holy grail' of simultaneously reducing friction and fraud.
A card can do so much more.
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