By Alex Zeltcer, Co-Founder and CEO at nSure.ai
Digital transformations occur when existing technologies and tools hold back growth. Digital processes simplify tracking, eliminate errors, and save time and money. They enable automation and ensure compliance with international standards. When viewed through that lens, it is surprising that cryptocurrency has struggled to gain much wider acceptance in today’s economy.
Despite the strong desire to speed and simplify transactions anywhere, or the significant media attention given to cryptocurrency, its adoption is actually relatively small. The total crypto market is worth an estimated $1.15 trillion, or about 0.8% of the world’s currency. An estimated 300 million people are using cryptocurrencies today, which seems like a lot until you realize it is less than 4% of the global population.
Another compelling motivator would be that fiat currencies are frequently at risk of devaluing. In January of this year, Lebanon depreciated its currency by 90%. Over the last half-century, we’ve seen a number of government-initiated currency deflations. These types of actions should be eroding confidence in government-issued currencies.
Between the hype and the serious motivations to adopt crypto, we haven’t seen an onboarding of mass scale. Clearly, some ideal market conditions are there, so what is holding it back?
Three Roadblocks To Cryptocurrency
There are plenty of people who aren’t interested in cryptocurrency at this time. Fear, uncertainty, and doubt – coupled with negative stories surrounding failed companies like Celsius and FTX – are keeping some people away.
However, even those who are interested in trying it are finding their path blocked. There are essentially three checkpoints on the path to cryptocurrency adoption that eliminate 60% of the interested market—nearly all of these roadblocks center on fraud concerns and overzealous fraud prevention activities.
When consumers want to purchase cryptocurrency, they have to go to a cryptocurrency exchange. They choose their crypto-wallet, but before they can make their initial purchase, they are asked to provide KYC (Know Your Customer) information.
KYC is important legislation in the fight against money laundering. It helps prevent weapons financing, human trafficking, and terror financing. However, there are regulatory guidelines that define minimum values before KYC steps are required (e.g., USD$ 3,000 or 2,500€). Most first-time crypto-purchasers are looking to buy only $100-$500 worth of cryptocurrency, far below the threshold for KYC. This unnecessary friction in the process actually stops 25% of potential crypto users from moving forward with their purchases.
Payment networks, like Visa and Mastercard, are associating a high level of risk for all transactions to purchase cryptocurrency. The average payment rejection rate for e-commerce is about 10%. That jumps to 25% for consumers who want to purchase cryptocurrency.
For the cryptocurrency market, this is quite significant. After losing 25% of its potential market to users who walked away from an unnecessary KYC process, 25% of those who remained were turned away by credit card companies.
Payment Fraud Prevention Software
Crypto exchanges fraud teams and third-party fraud prevention companies add an additional layer of fraud protection for all transactions to protect against chargebacks. These fraud detection platforms review transactions in real-time and determine whether or not to approve the transaction.
Of the transaction attempts that get past Visa and Mastercard’s initial review, another 25% are turned down due to concerns of fraud.
When taken together, these three checkpoints eliminate approximately 60% of new crypto users. It unnecessarily limits the crypto-marketplace and forces users to continue using government-issued fiat.
Unleashing Chains, Onboarding Masses
Every day, thousands of interested cryptocurrency users run into unnecessary friction and are turned away at these three checkpoints. Until those issues are resolved, it’s going to be challenging to reach widespread adoption.
However, part of the issue stems from the different tools being deployed at each checkpoint. KYC is an important regulatory tool in the physical world. However, it is often misapplied in the digital world and far too easy to be faked. Verified KYC accounts sell for $50-$150 on the dark web. As you might expect, purchases stemming from those accounts are oftentimes fraudulent.
Fraud prevention technology for high-risk digital purchases currently exists without requiring KYC for every transaction. Using AI technology backed by a suitable prevention strategy, such as not focusing solely on identity verification, enables cryptocurrency sellers to detect and prevent fraudulent payments far more effectively than existing solutions used by exchanges and legacy payment fraud solution companies. Dedicated AI models designed for the merchant and the segment have proven themselves with online digital purchases. This approach would represent a win for users trying to open their first crypto-currency account and would be a positive step forward for anyone trying to onboard the masses.