Risk-based authentication: what it means for banks and fintechs

TL;DR: Fraud now unfolds across sessions, channels, and increasingly AI-mediated interactions, while 97% of consumers say fraud prevention matters when choosing a financial institution, according to Alloy. The real shift is that authentication must become continuous, contextual, and permission-aware, or it will keep missing account takeover patterns.

Editorial analysis by NHI Mgmt Group, based on content published by Alloy: “Why risk-based authentication is the next frontier for financial institutions and fintechs - and why we built it into Alloy”.

By the numbers:

• 97% of consumers say fraud prevention is a top factor when choosing a financial institution.

Key questions

Q: What breaks when authentication is limited to a single login decision?

A: Point-in-time authentication misses multi-step fraud because attackers can stay within acceptable thresholds at each event while the overall sequence is malicious.

Q: Why do AI agents complicate customer authentication for banks?

A: AI agents complicate authentication because a successfully authenticated session can still be unsafe if the agent is allowed to perform the wrong action.

Q: How do banks know if accessible authentication is actually working?

A: Look for completion rates across user groups, support-assisted sign-in volume, exception requests, and the number of flows that fail under assistive technology testing.

Practitioner guidance

• Map authentication to session risk, not login state Define policies that can change trust level after entry when device, behaviour, or channel signals shift.
• Carry onboarding signals into runtime decisions Preserve KYC, device, behavioural, and contact history signals so later transactions are judged against a customer baseline rather than a one-time check.
• Separate read permissions from action permissions for agents Allow low-risk agent activity such as balance lookup, but require tighter policy for payment initiation, profile changes, and wire transfer actions.

Bottom line: Authentication failures now matter because fraud increasingly unfolds across multiple steps, channels, and decisions rather than a single login.

Explore further

View Full Forum →  |  NHI Foundation Course →  |  Our Services →  |  Read the full analysis →