How Crypto Exchanges Use Automated KYC Verification to Reduce Chargebacks

KYC is a key part of fighting fraud, especially in high-risk industries. Here's how crypto exchanges use automated KYC verification to reduce chargeback rates.
Daniël de Jager
By Daniël de Jager
Michelle Meyer - Editor for nSure.ai
Reviewed by Michelle Meyer
Fact Checked by Scott

Published December 6, 2022.

Customer due diligence using methods such as KYC has been a key part of payment fraud prevention in the crypto industry for many years now, but online businesses are still losing money through fraud. Identity verification still has a big part to play in fighting crypto fraud, but using it alone is not viable in a high-risk industry such as crypto where over 75% of fraud comes from KYC accounts without an accompanying machine learning fraud prevention solution. AI technology dramatically reduces fraud and its symptoms such as chargebacks, making itself a viable investment.

» Fraud prevention in crypto isn't as hard as you think. Here's why

4 Ways Crypto Exchanges Use KYC to Reduce Chargeback Rates

While there are risks to trading crypto without KYC verification, findings show that in crypto there is less data, little time for manual review, and a higher likelihood of large-scale attacks. Therefore, it's best to use AI models that use complex behavioral analysis and “in & out” contextual features in tandem with regulatory-required KYC. Together with AI fraud prevention solutions, KYC helps to combat crypto fraud with the following advancements:

  1. Robotic process automation (RPA) Automating the KYC process using software checks that also match identities to payment details lifts the load off of employees, saving both money and time.
  2. Anti-money laundering (AML) KYC While AML usually involves a broad spectrum of fraud reduction practices, it's used in KYC to screen identities against blacklists, watchlists, and other compliance databases. This will catch fraudsters who previously committed fraud and prevents them from repeating it.
  3. Liveness checks KYC involving just using documents to verify identity still leaves an opportunity for identity fraud. 3D liveness checks scan a person's face to determine if they are human and match the documents provided, especially the details given for payment.

» Should merchants allow crypto trading without KYC verification? Consider these risks

Conclusion

It may seem impossible to completely rid an industry like crypto of fraud like chargebacks, but advanced KYC verification together with fraud prevention solutions led by AI like nSure.ai makes it possible to significantly reduce chargeback rates as well as other types of fraud. KYC integrated into AI fraud prevention solutions creates a holistic fraud-fighting system built to recognize fraud in the high-risk crypto environment. Using KYC alone just doesn't cut it anymore.

» Want to stay in the 0.5% chargeback "safezone"? Discover how to reduce chargebacks with predictive AI