Cryptocurrency adoption is at an all-time high, but there are still two main barriers preventing many crypto exchanges from going mainstream: 1. high rates of account takeover and other types of fraud and 2. inefficient customer onboarding. Let’s examine these two challenges and see what steps crypto exchanges can take to address them in order to mitigate fraud while also improving the customer experience for new users.
While reports of fraud have the potential to spark a publicity nightmare for any company, they can be especially devastating for crypto exchanges. Because crypto is still a relatively new industry, one bad headline can critically damage a company’s reputation and dramatically slow adoption rates in the industry for years to come.
For the crypto industry, account takeovers such as SIM swap fraud and other social engineering scams are among the most common attacks. First, scammers trick victims into divulging personal information about themselves and then socially engineer customer service representatives to take over a victim's phone number by having them transfer the number to a SIM card in their possession. Once they've done this successfully, the fraudster takes complete control over the unsuspecting victim's phone number, allowing them full access to their crypto accounts.
While losses from these types of attacks now number in the billions, there are steps and technologies that crypto exchanges can implement to protect their users by detecting fraudulent SIM swaps before fraudsters can drain money out of accounts.
While speedy and efficient onboarding procedures give companies in many industries a competitive advantage in the digital age, it is an especially critical metric for crypto exchanges. For example, while a customer at a bank may want to open a new checking account as quickly as possible, chances are they will be more patient than a would-be crypto investor eager to purchase Bitcoin during a run. To that point, onboarding flows for crypto exchanges also need to be highly efficient in processing large numbers of investors. If a spike in the value of Ethereum makes headlines, for example, crypto exchanges should be prepared to onboard a new wave of eager customers before they head over to a competitor’s site.
The reason that onboarding with a new exchange is often cumbersome, of course, has to do with the fraud challenge mentioned earlier in the article. In order to properly identity-proof and KYC a new user, a crypto exchange may need to employ time-consuming or high-effort processes such as knowledge-based authentication or document-scanning, and users may even need to experience a waiting period of several days or weeks before they can be cleared to trade. Needless to say, these processes often turn new users off, and in many cases, result in abandonment or loss of business to a competitor. Fortunately, new identity techniques are helping many top crypto exchanges not only make their onboarding processes faster and easier for users but are also strengthening the initial identity-proofing that takes place.
When put into action, the above best practices can not only mitigate fraud for crypto exchanges they can also significantly improve the customer experience and decrease onboarding time while maintaining high security. Here are some examples of results that leading cryptocurrency exchanges have achieved using phone-centric technology:
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