How to use investment platforms and roboadvisors without compromising our digital identity

In recent years, we have witnessed a surge in online investment platforms and roboadvisor apps. These tools allow users to invest their money in a simple and automated manner, without the need for traditional financial advisor intervention. Unfortunately, scammers and cybercriminals have also taken notice of the rapid success of these platforms.

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oboadvisors are computer algorithms that use artificial intelligence to create and manage customized investment portfolios for each user. These algorithms rely on the user’s investment goals, risk tolerance, and financial profile to select the most suitable assets for their portfolio. However, the user always has the final say and decides the extent to which they want to take risks. 

Advantages of online investment platforms and roboadvisors 

These applications stand out for their accessibility, as they allow anyone, even those with limited financial knowledge, to invest their money easily and directly. This accessibility democratizes access to investment opportunities, which were previously reserved for a select few. 

Another key advantage is the convenience they offer. They fully automate investment portfolio management, which means users can save time and effort by not having to constantly monitor or make complex manual decisions. This is beneficial for clients who prefer a more practical and less intensive investment experience. 

When investing across a wide range of assets, from stocks to bonds and diversified funds, roboadvisors help mitigate risk by distributing investments evenly. This diversification is crucial for protecting invested capital against market volatility and other specific risks associated with individual assets. 

Additionally, they typically offer lower costs compared to traditional financial advisors. Commissions are generally more competitive due to process automation and reduced operational expenses. This enables investors to have greater potential to enhance the net performance of their investments over the long term. 

Various scams to divert funds and steal data 

However, the “investing for everyone” trend online has also led to scams and frauds. Essentially, these can be grouped into three major categories:

PONZI SCHEMES

Also known as pyramid schemes, Ponzi schemes are a form of fraud where the scheme operator promises investors high returns with little or no risk. To pay these returns, the operator uses money from new investors rather than generating real profits. The scheme operator often entices investors with promises of large profits and minimal investment.

To convince investors, the operator may show false results or use testimonials from previous investors who have received payments. Once investors have invested their money, the operator uses that money to pay the promised returns to the initial investors. As more investors join, the operator may pay even higher returns, attracting more investors. However, this scheme cannot last forever. Eventually, there won’t be enough new investors to pay the promised returns to existing investors. At this point, the scheme collapses and investors lose their money. Some signs that can help identify a Ponzi scheme or pyramid scheme include: promises of high returns with little or no risk, pressure to invest quickly, lack of transparency about how investors’ money is invested or difficulty withdrawing money.

FAKE INVESTMENT PLATFORMS

Fake platforms are websites or applications that impersonate legitimate investment platforms. These platforms often promise high investment returns with little or no risk. In reality, these platforms are scams designed to steal investors’ money. To achieve their goals, scammers employ various techniques to deceive users, such as creating websites or apps that appear professional and legitimate, or using logos and names of real companies.

In a study conducted by Netcraft in 2023, nearly 13,000 fake domains of investment platforms were detected and blocked across more than 7,000 IP addresses in only one month, revealing the true scale of this problem. We should be suspicious of the legitimacy of these investment platforms if, upon quick checks, we cannot find a physical address or phone number to support them. Similarly, if the platform is not listed among those regulated by financial authorities in the country. If the app does not provide clear information on how investors’ money is invested or if reviews are negative, these are also red flags that should raise our level of alert.

FALSE INVESTMENT ADVICE

On social media and certain online forums, false investment advice promising significant profits can often be found. This advice is typically provided by individuals lacking financial experience or expertise. At times, scammers track inquiries on social media and Telegram-like apps (regarding investments, cryptocurrencies, etc.) and contact users, posing as investment experts. In reality, this is a form of social engineering aimed solely at gathering personal data to facilitate identity theft and perpetrate scams. 

How to invest safely online 

• Invest only in regulated platforms: Before investing in any online platform, it’s crucial to ensure it’s regulated by the financial authorities in the user’s country. 

• Research before investing: Never invest in any platform or asset without thorough research. It’s advisable to read user reviews and compare different available platforms. 

• Start with a small amount: Only invest money that you can afford to lose. Begin with a small investment and increase gradually as confidence grows. 

• Beware of high promised returns: If a platform promises high investment returns with little or no risk, it’s likely a scam. 

• Diversify your portfolio: Avoid putting all your money into one asset or platform. It’s always better to invest in a reasonably diverse range of assets and platforms. 

• Be aware of risks: Investing always carries risks. Understanding these risks is crucial before committing any money. 

• Consult with a financial advisor: If unsure about how to invest money, seek advice from a trusted financial advisor. 

The alliance of banks and fintech with digital identity solution providers to combat fraud 

The growing demand for accessible, secure, and user-centric investment platforms has driven a strategic collaboration between banks, fintech companies, and digital identity solution providers. This alliance aims to combat fraud and deliver personalized investment experiences that meet the specific needs of each client. 

Digital identity solution providers offer technological solutions that verify users’ identities in a robust and reliable manner. This helps prevent fraud and identity theft, two major risks in the realm of online investments. 

• Biometrics: Biometrics such as facial recognition or fingerprint scanning provide a secure and convenient authentication method for accessing investment platforms. 

• Identity document verification: Digital verification of documents such as ID cards or passports using AI-powered technologies allows for quick and secure user identity confirmation. 

• Multifactor authentication (MFA): MFA adds an additional layer of security by requiring more than one authentication method, such as a password and a code sent to the user’s mobile phone. 

• Identity wallets: Digital identity wallets are secure applications that enable users to store, manage, and share their verifiable credentials. Verifiable credentials are digital certificates issued by trusted entities like governments or businesses to verify an individual’s identity or attributes. These credentials are based on open standards and use blockchain technology to ensure authenticity, integrity, and non-repudiation. Identity wallets function as a digital wallet where users can securely store their credentials and access them as needed. 

Implementing robust and reliable digital identity solutions not only helps combat fraud and protect users but also paves the way for a future of safer, personalized, and accessible investment experiences for all. As always, responsibility, informed decision-making, and seeking expert advice are the best defenses against potential pitfalls. 

Explore our digital identity solutions to strengthen onboarding processes and prevent fraud