June 14, 2024

Creating effective customer risk assessment for ensuring your security


As technology advances rapidly, shifting our landscape into a more digital one, especially in the financial sector, the risk of cybersecurity threats and fraudulent activities is also increasing. Consultancy company Juniper Research has predicted in their Online Payment Fraud: Market Forecasts, Emerging Threats & Segment Analysis 2022-2027 that $48 billion will be lost to fraud in 2023 just by e-commerce merchants. That is an increase of 16 percent compared to $41 billion lost in 2022.

While $48 billion already sounds like an enormous amount, that is just a small part when you add the loss experienced by other industries. You can prevent your business from becoming a part of the statistics by implementing an effective customer risk assessment. This process will allow you to identify any high-risk individuals that might pose a danger to your business and react before that can happen.

Why should customer risk assessment become an essential element of your security strategy?

The truth is that no one-size-fits-all security process can ensure your business is completely safe from every type of danger. From cyberattacks, fraudulent activities, or financial crimes like money laundering, there are so many different factors companies need to consider before

creating a security strategy that works for them. Considering how customers are an essential element of any business, it comes as no surprise that you should prioritize ensuring they are indeed who they claim to be and that they don’t pose a danger to your business. This is where customer risk assessment comes into play. It allows you to determine the risk factors different customers pose to your business, making it easier to decide how you want to proceed with your engagement.  

What exactly is customer risk assessment?

Customer risk assessment is a set of various steps that a business needs to conduct every time they onboard a new customer or when there are changes detected with current customers. In this way, companies can gather relevant information about the user, allowing them to determine any potential risks the customer might bring. Once the business determines the customer’s risk level, it can make informed decisions about the next steps. For example, they can refuse to provide their services to customers classified as high-risk or ask them to provide additional documentation that might reduce their risk level.

Not every business deals with some type of customers, so while financial institutions have to deal with politically exposed persons and the threat of money laundering or terrorism financing, e-commerce businesses will have to deal with the dangers of identity theft and chargebacks. All of them will have to determine for themselves what is the risk level of customers they are willing to work with and where they will draw a line in the sand.

How can you create an effective customer risk assessment?

With so many different factors to consider, it can be hard to decide what you need to include in your customer risk assessment to ensure it is as effective as possible. To ensure your customers are who they claim to be and that they do not have any malicious intentions toward your business, you should consider these elements: customers, geography, product or services, and transactions.

Customer: You should gather relevant information about your potential users to determine primarily if they are who they claim to be and secondly if they pose a higher risk to your business than usual customers. For example, some types of customers, such as politically exposed persons (PEP), are automatically classified as high-risk since they have more opportunities for being involved in money laundering or corruption. SEON mentioned in their guide on AML verification suggests validating the name, date of birth, and address of the account holder to comply with international mandates.

Geography: Next step is determining the customer’s location. Not only that some countries present a higher risk of money laundering or corruption, but user location can also reveal additional red flags. For example, their IP address doesn’t match the address they provided, or suddenly you are receiving customers from countries you usually don’t get clients from.

Products/Services: The products and services you offer should also be factored in when conducting a customer risk assessment. Different levels of evaluation are needed in a business that usually sells products worth around $20 and the company offering products whose price ranges in the thousands. It also helps to determine standard patterns of customer purchasing behavior, making it more noticeable when deviations are happening, allowing you to react on time.

Photo: Unsplash

 Pax2pay mentioned that in 2021, seven out of ten organizations(71%) were victims of payment fraud attacks or attempts. Including transactions as a factor in your customer risk assessment can help your business to avoid becoming a part of statistics.

By determining the most common transaction methods in your business, you can familiarize yourself with all the different risks associated with them, such as card testing attacks, according to Brex. This helps you improve your reaction time and allows you to stop the threats before they can damage your business.

To ensure your customer risk assessment is as effective as possible, you need to ensure that it doesn’t stop with the sign-up process. The situation can change; low-risk customers can become high-risk, or fraudsters can take over the account of legitimate customers. Continuous risk assessment can prevent these situations from affecting your business.

After you determine the customer risk level, you can make informed decisions about the next step. You can choose to:

  • Accept the risk and allow the user to continue with their transaction
  • Avoid the risk and block the user from further actions in your system

To make a decision-making process more straightforward and mitigate the risks, you should take additional steps such as implementing proper cybersecurity measures and ensuring you follow AML regulations.


In an ideal world, every customer would be a perfect match for your business, and there would be no abandoned carts, chargeback requests, or any other dangers that put your business at risk. Unfortunately, we are still a long way from that happening. Your potential customers might be trying to commit financial crimes such as money laundering, or hackers could be creating accounts to commit payment fraud, making customer risk assessment more important than ever. With it, you can identify the level of risk your customers pose to your business and react before they can cause any damage. While not bringing them to an ideal world just yet, it gives companies peace of mind when engaging with customers.

Blog from SEON Technologies



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