The allure of investing early in the “next big thing” has led to interest in investing in cryptocurrency. Cryptocurrency is a type of digital or virtual money that exists in electronic form (no printed dollars or coins). As a new industry, it is highly unregulated compared to other types of investments and banking. While there is potential for a big win, there is strong potential for a big loss.

Crypto Buyer Profile

Crypto investors tend to be younger adults. They decide to put money into a crypto currency investment with the idea that the currency will gain value over time. When compared to current low and no interest checking and savings accounts rates, where money will not grow in a conventional banking account, crypto provides the promise of potential growth.

People use cryptocurrency for quick payments, to avoid transaction fees that regular banks charge, or because it offers some anonymity. It is typically exchanged person to person online (such as over a phone or computer) without an intermediary like a bank. This means that there is often no one to turn to if there is a problem with the exchange.

Crypto Risks

While some crypto investment opportunities may be speculative long term plays, unfortunately unscrupulous scammers have been attracted to the emerging industry. Investors may find their investment to be worth nothing and the value stolen by a scammer. New crypto currency brands emerge often and many consumers do not know which are legitimate. Because crypto currency is stored in a digital wallet, it is at risk from hackers stealing it. Because there is no banking intermediary, there is no one to turn to if there is fraud.

Crypto currencies are not backed by the government. So, if you store your crypto with a third party company that disappears or is hacked and your money is stolen, there is little to no recourse and the government has no obligation to help you get your money back.

Unlike with credit card purchases, returns and refunds are often not possible for purchases made with crypto because the unregulated industry does not offer these protections as standard.

Crypto currency values change rapidly and constantly. Value is based upon supply and demand. Unlike many investments that may fall in value but typically regain value over time, crypto is less stable. A purchase of $1000 could fall to a value of $100 in minutes. Conversely, it could rise to a value of $10,000 in minutes. But then it could change again – even while you are trying to cash out on your gain while up, it could result in a loss due to the value changing again before the transaction is complete.

How can you protect your banking customers from crypto fraud?

DaybreakTM for Financial Institutions was built specifically for mid-market banks and credit unions to get business outcomes using analytics. Daybreak can mine your transactional data to determine which of your customers has money leaving or entering your bank from a crypto currency company. This will give you an actionable list of customers for outreach and education on risks. If enriched with a listing of crypto companies known to be fraudulent, targeted outreach may be done by you to save your customers from fraud. Further, after explaining the risks of crypto and educating your customers, you may be able to offer an alternative investment opportunity to keep your customers safe and their dollars in your bank.