5 Reasons Why Banks Must emphasize On Risk-Based Authentication (RBA)

risk based authentication
risk based authentication

As digital transactions are booming, instances of cyber fraud are simultaneously increasing. Especially in the case of online card payments, cybercriminals are constantly coming up with new fraudulent methods to dupe consumers. Rising card-related frauds are hassling end-users, and banks and merchant businesses bear the brunt of such cumulative thefts. 

From financially compensating the victims to reputational losses and eventually losing customers to competitors, the repercussions for banks and merchants are multi-pronged. The solution lies in Risk-Based Authentication (RBA), a novel approach to prevent online payment fraud.

What is Risk-Based Authentication (RBA)?

RBA is a robust fraud prevention mechanism far more advanced and secure than conventional two-factor or multi-factor authentication. Here, a comprehensive risk assessment is carried out for every digital transaction, based on which a risk score is assigned. The score determines the level of authentication required.

  • A low-risk score implies that the customer can proceed hassle-free, applicable for 90% of all digital payments.
  • A medium-risk score warrants two-factor or multi-factor authentication before debiting the amount. Around 8% of online transactions fall under this category.
  • A high-risk score is a red flag, meaning the transaction should be declined. Approximately 2% of digital transactions are deduced to be of high risk.

Why is Two-Factor/Multi-Factor Authentication insufficient?

Since the introduction of online banking (and other virtual financial services), two-factor/multi-factor authentication has been commonly implemented to prevent cyber fraud. 

This authentication system has multiple loopholes:

  • If the fraudster has stolen the customer’s phone/card or taken over their account, they can easily pass through multi-factor authentication. 
  • Furthermore, if it is an instance of page jacking wherein the e-commerce site is hacked and diverted to a malicious page for payments, the conventional authentication system is likely to fail.
  • The complexity of cyber theft and phishing is alarmingly rising. There are multiple digital fraud cases for every online payment solution (no matter how efficient). Hackers are getting smarter and more devious. Only AI-driven risk assessment can help determine whether the transaction is safe.

5 Reasons for Banks and NBFCs to implement Risk-Based


RBA is a cutting-edge system that proactively detects suspicious card activity and declines immediately. Some key risk factors that immediately raise the alarm include suspicious location changes, irresponsible spending, or sudden (out of pattern) high-volume transactions. Installing an advanced, real-time fraud prevention mechanism like RBA is no longer an option but a necessity for banks and financial businesses today.

Here are five reasons to support this statement:-

  1. Top-Notch Fraud Reduction and Compliance– Data points like the end-user device, IP address, location, time, transaction volume, network, and so on are simultaneously analyzed. Even the slightest risk is detected and nipped in the bud with necessary authentication. Banks abide by the latest data security norms and create an immediate alert for fraudulent transactions.
  1. Shielding Genuine Consumers– The last thing genuine customers want is for their payments to be disrupted by unnecessary checks and barriers. While multi-factor authentication presents the same authentication checkpoint for all customers, RBA is an intuitive system that provides a green signal to genuine customers.
  1. Hassle-Free Transactions for Customer Retention and Loyalty– Be it due to frequent transaction failures or high instances of cyber theft, the biggest loss for banks and NBFCs is the loss of customer loyalty. Unreliable payment gateways and constant network errors eventually lead to negative word-of-mouth and are detrimental to customer loyalty. By setting up RBA to secure all online payments, banks can ensure enhanced, seamless customer experiences, thus garnering increased loyalty.
  1. AI-Driven, Scalable Systems– Risk-based authentication is a modern AI-driven security system, unlike legacy-based systems. It is easy to integrate across various online payment solutions. It can be scaled to meet the requirements of an increased user base or consistently higher transaction volume over the years.
  1. Reduces Risk Management Costs– Financial businesses often tend to overspend and incur major losses over risk management. RBA helps assess those transactions requiring authentication checks. You can easily give nearly 90% of the total transactions the go-ahead without any unwarranted barriers. Only the ones that pose a significant risk are highlighted, saving time and money and improving transaction efficiency.


Financial Institutions and Merchant Businesses must ensure that RBA is well-integrated across all their digital payment solutions. Regularly upgrading firewalls and other network security software helps protect sensitive customer details. While some RBA processes are user-centric (prime focus on the user credentials), others are transaction-centric, centred on assessing and authenticating the transaction.

Ideally, a balanced merger of these RBA variants will ensure consistent and robust security.

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