May. 06, 2024
The process of verifying users during checkout is often cumbersome for both consumers and merchants.
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Merchants want to prevent fraud without rejecting legitimate buyers. Meanwhile, consumers desire a fast, simple checkout process. SMS verification could be the answer.
Although SMS verification is not perfect by itself, it offers benefits for both merchants and consumers. Let’s delve into how SMS verification codes can reduce fraud and confirm legitimate customers.
SMS Verification is a fraud prevention technique that sends short message service (SMS) messages to a buyer’s device during checkout. The buyer usually inputs a 4- to 8-digit code sent via text to verify the purchase.
As the term suggests, SMS verification involves sending a text message as part of customer verification. You might have experienced this when submitting an online form or logging in to an account, where you needed to enter a code sent via text. This illustrates how SMS verification functions.
This verification method isn’t used for every purchase. Instead, it's often applied for first-time buyers. SMS codes can also eliminate the need for manual reviews when immediate verification is not possible.
SMS verification is straightforward. It starts with conventional fraud detection tools and fraud scoring to evaluate a transaction’s risk.
If a transaction has high fraud risk indicators, an SMS verification code is sent. This one-time-use code confirms the phone number associated with the user’s account.
Once the user logs in, they receive a text with the SMS code, which they enter into the app or website. This verifies the user, allowing transactions from them.
This method is considered an "ownership-based" authentication factor, requiring possession of the device for purchases. Despite being the easiest to hack, it relies on a second authentication layer like a passcode or biometric scan.
SMS verification helps authenticate orders otherwise needing manual oversight, potentially recovering orders often rejected by fraud scoring technology.
SMS verification can deter fraud tactics like account takeover and basic bot attacks. If a fraudster doesn’t have access to the buyer’s device, they can’t enter the code and complete the purchase.
Initially, merchants feared SMS verification would introduce friction and lead to order abandonment. However, modern consumers are familiar with SMS codes and appreciate the added security for their accounts.
SMS codes work on all mobile devices and are easy to incorporate into existing checkout processes. Consumers recognize and find SMS authentication easy to use, requiring just a few taps.
Well… yes and no.
While SMS verification adds a security layer, it may not thwart all attacks and has vulnerabilities.
To counter account takeover, users need their phone number linked to their account before a purchase. Otherwise, a fraudster could substitute their phone number during the checkout process.
There are several issues with SMS authentication. In 2016, the National Institute of Standards and Technology (NIST) discouraged using SMS authentication, later suggesting it could be useful combined with other verification factors. However, standalone SMS authentication remains vulnerable.
SMS verification has several drawbacks, including:
Buyers need their phone to receive SMS codes. Those without their phone can’t complete their purchase. Merchants should offer alternate verification methods to avoid legitimate buyer rejection.
Overusing SMS codes can deter buyers and increase costs, as merchants pay for each SMS sent.
SMS is relatively inexpensive but varies among providers. Overreliance on SMS without other anti-fraud methods exposes merchants to sophisticated schemes, assuming liability for damages from fraud.
If a device used for verification is lost or stolen, a fraudster with access may defeat SMS verification.
Fraudsters use social engineering to obtain login credentials, gaining control over accounts and SMS messages.
SIM hacking, which intercepts SMS messages, poses a serious threat to SMS verification.
A fraudster sends malicious code disguised as relevant to the phone carrier, compromising the SIM card.
Fraudsters pose as legitimate customers, requesting a replacement SIM for an upgraded device, redirecting the new SIM to themselves.
Hackers gain physical access to a phone and clone the SIM card, using it to spy on calls, texts, and apps, taking over accounts with the information gathered.
While SMS verification helps prevent fraud, it isn't effective solo. Relying solely on SMS 2FA leaves merchants vulnerable to attacks.
Despite known security risks, many merchants and consumers find SMS verification a safe, low-friction method for customer validation.
Why? SMS is familiar and widespread. Consumers recognize the common code prompts on their phones. Merchants prefer methods known and understood by customers, reducing annoyance and sales loss.
SMS authentication is simple to deploy with little oversight, and both merchants and consumers have adapted to 2FA sign-ins.
Users desire a quick, seamless authentication experience across platforms, often viewing SMS verification as an ideal solution despite its risks.
SMS verification may have utility but isn't a reliable, long-term solution. Here are other verification methods:
Apps like Message Notification Service for Improving Marketing Effectiveness, Google Authenticator, LastPass, and Authy generate encrypted codes directly on the user's device, verified by another device, adding double layers of security.
U2F hardware tokens, such as FIDO and YubiKeys, offer secure, physical tokenization for in-store merchants. Although hackable, they are more secure than SMS.
While SMS verification isn't strong enough alone, combined with other tools, it can enhance transaction security.
For effective use, understand SMS verification's shortcomings and better incorporate the technology.
Some merchants use in-app push authentications rather than SMS. This method is more secure and cost-effective. However, even without an app, SMS can thwart fraud and validate buyers if used effectively.
Incorporate conventional SMS messages as part of a layered approach using other fraud identification methods. Dynamic deployment based on risk makes SMS verification cost-effective and efficient.
Optimize verification flow, find cost-effective SMS providers, and deploy a multi-layer fraud detection strategy to keep costs manageable.
A comprehensive fraud management strategy should include various tools for detailed transaction analysis. Using complementary tools helps spot fraud without false positives.
Aim to verify fewer than 1% of transactions via SMS with a well-rounded fraud detection arsenal.
SMS verification is a fraud prevention technique sending SMS messages during checkout. Buyers usually enter a 4- to 8-digit code to verify purchases.
Partially. It has vulnerabilities, as fraudsters can use malware to intercept SMS messages and spoof identities using different SIM cards.
Yes! View SMS messages or authentication prompts in-app only; avoid forwarding to personal devices.
Yes, through social engineering, SIM hacking (jacking, cloning, swapping), and other attacks.
Yes. Alternatives include non-SMS 2FA apps and U2F tokenization hardware.
SIM swapping occurs when a fraudster requests a new SIM posing as a legitimate customer. The phone network might redirect the new SIM to the fraudster, without stealing the phone.
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