Unauthorized account access made up 43% of successful American business data breaches in 2020, making authentication an extremely important security concern for companies that do business online. In 2020, consumer losses due to identity fraud amounted to $56 billion. What’s more, 53% of American local, state and federal government bureaus saw an increase in account takeover fraud in the past few years.
Digital wallets and cryptocurrency exchanges tend to attract a ton of fraud, thereby requiring secure authentication to protect their platforms from cybercriminals. In 2020, bad actors made off with around $300 million from crypto accounts through phoney crypto exchanges, phone number hijacking and phishing scams. What’s worse is the fact that crypto exchanges are nearly entirely unregulated; however, as the threats of fraud increase, exchanges are gaining regulatory scrutiny.
Crypto monitoring by regulatory agencies is fuelled by exchanges’ parts in money laundering and cybercrime. Identified transactions from and to illicit or illegal accounts, while 50% lower last year, still amounted to $10 billion, with scams representing 26% of that amount. Ransomware payments increased by 311%; even though the number is already fairly high, ransomware scams usually go unreported and the actual percentage increase may likely be higher.
Financial regulators worldwide have attacked the growth in cyber fraud by cracking down on digital wallets and crypto exchanges with insufficient anti-money laundering (AML) and know-your-customer (KYC) processes.
Binance in the UK was blocked from regulated operations after declining to register with the Financial Conduct Authority (FCA). As a result, Santander and Barclays additional banned its customers from transacting with Binance.
On the flip side, Kraken enhanced its US-based accounts KYC requirements for margin trading in order to be more aligned with the Securities and Exchange Commission (SEC) regulations. Coinbase continually monitors changes in authentication requirements and regulations in the digital wallet and crypto space, making changes accordingly.
The strong customer authentication (SCA) directive by the European Banking Authority (EBA) has shaken up the financial sector ever since its inclusion in the revised Payment Services Directive (PSD2).
These strong customer authentication regulations mandate payment service providers (PSPs) to use multi-factor authentication (MFA) as a way of protecting card-based online payments and digital transactions. EBA released a report recently that demonstrated the significant advancements in strong customer authentication; it revealed that 99% of EU merchants support strong customer authentication, and 94% of EU payment cards are strong customer authentication qualified.
Bringing all this over to the FinTech side, digital wallets and crypto exchanges can meet strong customer authentication requirements by implementing FIDO2. FIDO2-certified passwordless authentication providers, such as LoginID, offer payment authentication and passwordless authentication tools ideal for the crypto space.
With only a few lines of code, digital wallets and crypto exchanges can implement LoginID’s strong customer authentication quickly, easily and at no cost. LoginID”s powerful fraud prevention tool pairs end users with their biometrics (facial scan or fingerprint scan) and creates a private key/public key pair. The private key is stored safely on the user’s device, and no additional app is required.
Once a user registers, all they need to do is scan their face or finger to access their digital wallet. This is a better experience for the user, and also allows the exchange to meet multi-factor authentication standards.
As an added security layer, digital wallet providers can even take advantage of LoginID’s biometric digital signature API and transaction confirmation to provide their users with payment authentication. Then customers want to transfer or trade their crypto, they will be prompted to scan their biometrics, which will authenticate the payment and create a digital receipt.
With this dual fraud prevention approach investors can rest assured that their account is protected against fraud.
With the EU planning to institute a digital identity verification framework, a convenient way for digital wallets and crypto exchanges to prepare themselves is to utilize LoginID and authID’s digital identity verification solution. This solution recognizes and verifies over 9,000 documents from hundreds of countries, thereby simplifying the digital identity verification process. The solution is mobile compatible, allowing for simplified mobile identity verification.
Cryptocurrency is still making a global impact, not only attracting investors but also regulators who are scrutinizing the industry in an attempt to curb illicit activity.
Digital wallets and crypto exchanges need to create a strong infrastructure to cope with the increasing regulations in the space. Utilizing LoginID’s suite of strong customer authentication solutions allows digital wallets and crypto exchanges to forge ahead in their fraud prevention attempts.
LoginID Offers Authentication Solutions for the Crypto Space, Free to Try!
This article is an adaptation from PYMNTS.