Verifying Identity In Today’s Digital Economy: A Look At Regulated Retail
September 9, 2019
Glenn Larson is the Vice President of Engineering at Acuant and is a member of Forbes Technology Council, an invitation-only community for world-class CIOs, CTOs and technology executives. Read his article for the Forbes Tech Council below, or you can read the original here.
Digital adoption has changed the very nature of business and customer interactions. Just 20 years ago, business was always conducted in person — whether applying for a retail credit card or purchasing alcohol. The rise of mobile phones has changed that dynamic. Now customers can be located anywhere, with very little to no interpersonal communication throughout the transaction.
While customers are thrilled with the flexibility this provides — no need to travel to a physical location and no transaction restrictions during traditional business hours — retailers are left to determine how best to verify customer identity virtually, a challenge that only increases in scope. According to a survey by the National Retail Federation, “92% of companies surveyed had been a victim of organized retail crime (ORC) in the past year.” Even further, “71% said ORC incidents were increasing.”
Retailers are left struggling to balance security with user experience. Research shows that the onboarding process is often the key indicator of the customer relationship. A laborious ID verification process during onboarding often results in an abandoned cart or — worse — a visit to the competition.
Regulated Industries Face Strict ID Verification Legislation
Regulated industries — like alcohol, gaming, tobacco, vaping and cannabis — require more stringent compliance for verifying customer identity. New federal regulations require that retailers prove they are not selling “age-restricted” products online to customers who are “under the minimum legal age.” Failure to comply can result in steep fines or, in more severe cases, jail time.
The rise in popularity of “vaping” — especially amongst minors — has brought increased focus and legislation on the e-cigarette industry. According to a study by the American Academy of Pediatrics, “approximately 3 million U.S. adolescents currently use e-cigarettes. This includes those who never smoked cigarettes.”
The FDA weighed in on this growing public health concern during a March 2019 address. Scott Gottlieb, outgoing Food and Drug Administration commissioner, shared new age-restriction-related policy for the purchase of flavored e-cigarettes. The purchase of flavored nicotine pods will be limited to retailers and websites that impose age restrictions.
Individual states and counties have taken steps to fight this epidemic on their own. For example, California’s recently enacted Stop Tobacco Access to Kids Enforcement Act, or STAKE Act. Meant to prohibit the sale of tobacco products to anyone under the age of 21, the STAKE ACT mandates that distributors and retailers post a notice at each point of purchase, and it requires online retailers to verify the age of prospective consumers.
Adapting To An Era Of ‘Customer Not Present’
It’s no secret that mobile commerce has exploded. Forrester estimates that “sales made via smartphones is expected to reach $209 billion by 2022 and in 2018 accounted for approximately 23% of all online sales.”
Rising mobile and e-commerce transactions present challenges in verifying customer identity; however, there are steps retailers can take to minimize risk and add benefits:
• Require Customer Accounts: Taking this step ensures that customers provide adequate, verifiable information about themselves during the initial purchase process only (onboarding), making ongoing purchases much faster and easier, providing the ability to personalize targeted advertisements and marketing campaigns in subsequent client engagements.
• Use Identity-Verification Software: Savvy retailers are adopting online fraud-detection tools like risk-based authentication and new account fraud prevention. Especially pertinent for retailers in highly-regulated industries, identity verification software ensures compliance with mandates and legislation.
• Get to Know Your Customer: Retailers that properly manage customer data — whether it be purchase history or personal preferences — are streamlining the process for future business and creating a “stickier” relationship with their customer base
• Meet Customers Where They Shop: The growing number of global transactions means that it’s more important than ever to provide solutions to identify and protect users on the move. Be mobile! Look for solutions that can streamline the onboarding and information gathering process (eliminate unnecessary typing where possible) on all channels — especially on smartphones — while accurately identifying each customer.
As retailers struggle with the hurdles imposed in identity verification — especially for those in highly-regulated industries — it’s important to keep in mind there is no one-size-fits-all solution. Ultimately, your solutions and practices need to provide a streamlined, balanced and customer-centric approach. How you go about doing that is up to your business and what works best for your customers.
To learn more about Acuant’s identity solutions, schedule a demo now: