Redefining Fraud Prevention Through Dynamic Friction
Interview with Tamas Kadar, CEO and co-founder of SEON, on Dynamic Friction
The continued rise of online fraud is one of the most concerning trends of recent years. Wherever technology advances, fraudsters, unfortunately, seem to follow. Recently, INTERPOL, the international organisation that facilitates worldwide police cooperation and crime control, released its Global Financial Fraud assessment, highlighting that technology is “enabling organised crime groups to better target victims around the world.” These findings add to a growing chorus of news items that underscore how critical this problem has become.
Against this backdrop, businesses across various sectors are more pressured than ever to reduce the prevalence of fraud on their platforms. For many, this has taken the form of enhanced Know-Your-Customer (KYC) checks. While the intention behind these measures is commendable, in practice, they often lead to undesirable consequences. Notably, some companies have struggled to implement stringent security protocols without negatively impacting the overall customer experience – leading to an uncomfortable trade-off.
Rather than forcing a choice between effective security and positive customer experiences, a new approach is gaining traction. Dynamic friction seeks to tailor protective measures to the specific risk level of each customer, rather than simply applying uniform safeguards. This emerging strategy is gaining popularity across several sectors, with a number of leading fraud prevention businesses, such as SEON driving its adoption. We spoke with the company’s CEO and co-founder, Tamas Kadar, to learn more.
Hi Tamas, could you define what dynamic friction is all about and explain how it differs from traditional identity verification methods?
Dynamic friction refers to the flexible application of security checks based on the assessed risk level of a user’s behaviour. Unlike traditional identity verification methods, which often employ rigid, uniform checks, dynamic friction adjusts the intensity of security measures in real time. This approach allows low-risk users to experience minimal barriers, thereby enhancing their experience, while higher-risk activities trigger more stringent checks. The objective is to create a secure yet seamless environment, where legitimate users navigate the process smoothly, and potential threats are effectively mitigated.
Why is dynamic friction becoming a critical tool in the fight against online fraud, especially in today’s digital-first world?
Numerous reports indicate that online fraud has risen dramatically over the years, forcing businesses to react to protect their customers and maintain trust in their platforms. While the effort to enhance security is understandable, the execution of these measures often negatively impacts customer experiences by adding excessive friction to the customer journey.
In today’s digital landscape, this is far from ideal. More than ever, users of digital platforms demand seamless experiences. This has left many businesses in what feels like a ‘lose-lose’ situation. Fortunately, dynamic friction offers a solution to this quandary by enabling businesses to meet user expectations without compromising security. By tailoring security measures to the specific risk profile of each interaction, companies can move beyond static, one-size-fits-all approaches and build more sophisticated defences.
Can you expand on that a little? How exactly does dynamic friction help organisations strike the right balance between security and customer retention?
Ultimately, dynamic friction is about giving businesses more control to fine-tune their security approach and apply the appropriate level of checks. It’s far more adaptive than previous methods, which is important when the goal is not only to reduce fraud but also to retain customers. If the system flags a high-risk user, it can apply more intense verification, but this doesn’t happen across the board, so it crucially doesn’t adversely affect low-risk users who simply want to access the platforms and services they enjoy.
That’s interesting. So how does it work? How can you tell who is high-risk and low-risk without mandating blanket verification mechanisms?
Much of the process occurs in the pre-KYC phase. This means it takes place before the individual even attempts to sign up or access an online service or platform, based on factors that are difficult to disguise. Perhaps some of your readers are aware of this, but everyone operating online has a digital footprint, which includes a range of data points, such as social media activity, email reputation, and device usage patterns. With effective analysis, this data provides a clear picture of a user’s trustworthiness.
For example, based on our internal reports, 80% of fraudsters use throwaway emails or phone numbers that aren’t linked to any other services. This is an immediate red flag if you’re aiming to identify fraudsters before they sign up for a service. Social media footprint analysis takes this a step further. While it’s easy to use disposable information, creating a comprehensive social profile is much more challenging—especially for professional fraud rings attempting to scale their operations.
When combined, these data sources offer rich insights into a user’s behaviour and trustworthiness, enabling a more accurate assessment of risk. This analysis, in turn, allows businesses to make more informed decisions about the level of scrutiny required, thereby facilitating the implementation of dynamic friction. It’s a highly modern approach, but one that is incredibly effective and is already proving to be an asset for businesses across various sectors as they seek to tackle the scourge of online fraud.
