3 Benefits of Risk-Based Authentication for Crypto Exchanges
Risk-based authentication is an automatic process that verifies user information. Discover the benefits this process holds for crypto exchanges.
Published December 6, 2022.
Risk-based authentication is a user verification method that uses pre-defined criteria to assess a user's risk factor and determine whether they are who they claim. This method is often used for fraud prevention in crypto and is usually integrated into a larger fraud prevention solution.
Every time somebody logs on to an account, they are risk-assessed using their location, IP address, device information, time of submission, and potentially hundreds of other data points. If the risk is perceived to be low as for most users, they can continue using the platform without interruption. If the risk is perceived to be high, users will be routed through further steps of authentication to determine if they are fraudulent or not.
So, what are the benefits of risk-based authentication?
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1. Protects Legitimate Users
Legitimate customers should be the priority of any good business. Risk-based authentication within a wider AI model protects legitimate users while addressing any seemingly fraudulent activity. An account flagged due to suspicious activity is closely monitored and its transactions placed under special scrutiny by the AI fraud detection solution, allowing fraud to be blocked proactively. If no further fraud is detected, no action is taken, and legitimate users can continue trading with ease.
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2. Convenient and Scalable
Risk-based authentication is a convenient and scalable way to combat the increasingly bad state of digital goods and the fraud surrounding it. The most damaging fraud today is scalable and unexpected, and fraud prevention solutions need to be able to respond accordingly. Well-designed machine learning models will adapt as needed while conveniently handling most of the heavy lifting, allowing risk management teams to focus on improving the fraud prevention model or analyzing special cases.
3. Improves User Experience
Payment fraud protection is imperative, but it should not come at the expense of good user experience (UX). Risk-based authentication, if done properly, should only challenge users when they trigger fraud limits. This means that the exchange doesn't need to use tedious friction layers such as unnecessary KYC, extra multi-factor authentication, and time-limit restrictions for new users. These reduced barriers to entry improves user experience above the competition.
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How to Implement Risk-Based Authentication
Like we said before, risk-based authentication is best implemented within a wider fraud prevention solution, preferably one that can make proactively decisions without referring to the anti-fraud team every time. Fraud prevention platforms like nSure.ai used advanced AI models and deep machine learning techniques to identify fraudulent transactions in real-time, stopping fraud attacks before they can do damage while preserving UX.
» Want to learn more? Let nSure.ai give you peace of mind