Rising consumer expectations, new regulations, and constantly evolving technologies are just a few of the issues that these companies need to contend with as they strive for rapid, healthy growth.

While there is no shortage of pain points for fintechs, not all are created equal. There is one major issue that affects nearly all companies, regardless of subsector, location or size. One single factor that can make or break the business.

What is it?

For three industry experts – Dustin Eaton, CFE, Sacha Vasilkioti, Fintech Product Manager, Veriff, and Daragh McMeel, Fraud Analyst, Inscribe – the answer is: fraud. 

Quickly and accurately identifying, stopping, and preventing fraud is one of the single biggest issues that fintechs need to address in order to be successful.

“Fraud is undoubtedly the biggest challenge,” says Dustin. “A lot of the pain in the fintech space comes about because risk is an afterthought. Companies didn't build the right controls or put the right people in place [and now they need to solve a more complex fraud problem].”

So how do companies address this issue? During our recent webinar, Manual Reviews are Killing Your Competitive Edge, these experts discussed practical ways that companies can effectively reduce the risk of fraud. Here we share four key tried and true methods from our panelists to help solve the biggest issue facing fintechs today.

 4 ways to address the fintech’s growing fraud problem

1. Engage and empower your frontline risk and operations staff 

While technology is sometimes seen as the headline of every fraud and risk practice, people are the true unsung heroes. They’re the ones who understand the challenges the organization is facing and help develop processes and solutions that address those specific issues as part of a comprehensive strategy.

"Technology without a method and strategy behind it is not going to do much good when it comes to fraud,” explains Sacha. “Before you buy a tool or deploy a solution, the company needs to be aware of what they're trying to improve and what they're trying to achieve."

That means engaging frontline staff to understand those needs.

"Technology provides some great solutions, but it’s not going to solve all the problems,” agrees Dustin. “Don’t look to the web or attend webinars to try and gather information about solutions before you understand your problems. Go to the people who are impacted every single day to see what the challenges are and what you need to bring to the table to fix those issues.”

The technology the organization implements should ultimately empower people within the business to fight fraud. When the right tools are deployed correctly, the benefit of that technology is two-fold: it improves the speed and accuracy of routine and tedious tasks through automation; and it frees up staff to focus on higher-value activity.

“Arming your team members with technology to improve their workflows is one of the best ways to empower the team as a whole,” says Daragh. “With the right technology, team members have more time to spend on strategic activities and specialized tasks.”

2. Introduce coordinated friction in your onboarding and underwriting

 Consumers today expect a frictionless experience… but when it comes to banking and finance they also expect a secure experience. 

 "For fintechs, there's some amount of friction that makes sense,” explains Sacha. “We strive for simplicity, but sometimes security is more important.”

Part of the challenge for fintechs is determining where and how to introduce friction so that the organization can vet potential cases of fraud without unnecessarily hampering the user experience for all customers. According to Daragh, this can be asking for more information when applicants don't pass the initial ID or a document check, instead of making the process longer and more complex for all users.  

This is what we call “coordinated friction.”

Dustin agrees with this approach. “If a user passes different checks related to documentation and identity verification, then the user experience should continue. But when those markers don’t seem to align, then it’s important to introduce that next level of friction to protect the consumer and the business.”

 This is an especially important task in today’s landscape as cases of fraud are on the rise. Fintechs saw a 70% increase in fraud attacks in the last year alone, underscoring the need for companies to take steps to address that growing risk.

 3. Partner with specialized technology vendors

While risk is a critical part of the fintech business model, these organizations are experts in lending – not risk. That’s why it’s so important for fintechs to engage partners who specialize in fraud and risk detection and can provide the tools and technologies to take this capability to the next level.

“The sheer level of sophistication being used to alter documents by some fraudsters at this time makes much of the fraud signals invisible to the human eye,” explains Daragh. “Relying on your team to be an expert in every type of document is not just unreliable, it’s unreasonable. With AI-powered technology, you get enhanced security and you free up staff to spend time on more strategic tasks.”

But as the vendor landscape becomes more crowded, it’s important to identify the optimal partner for your business.

“There are two things I look for in a vendor: great data and great response,” says Dustin. “In discussions with the vendor, I want to make sure that the organization will be responsive. When challenges come up, will they work with our team to quickly solve that problem? If they can’t. then there's probably someone else that can fill those shoes.” 

Sacha agrees. “Fintechs are getting smarter and more discerning because they’re more aware of what tools and technologies are available. That means that there will be a lot more flexibility expected out of vendors and the ability to integrate within the tech stack instead of one-size-fits-all solutions.” 

4. Arm your organization with data

No conversation about fraud would be complete without the mention of data. At the end of the day, data is what will help organizations find a balance between a frictionless experience and a secure business.

 “Success begins with good data,” says Dustin. “Knowing your average loss, the time it takes to investigate a case, knowing where the entry points are – you need that data to surface issues, make sense of them, and ultimately solve them.”  

When it comes to fulfilling the growth strategy, data is also of critical importance. With the right data, fintechs can use fraud detection and risk management as a vehicle for growth.

“The ultimate goal of the risk management strategy is to help the fintech approve more legitimate customers and support business growth in a responsible manner,” says Daragh. “By improving fraud detection, you reduce losses, enable better, faster decision-making, streamline onboarding, and so much more.” 

 In the world of fintech, the importance of a comprehensive fraud strategy cannot be understated. It’s important to remember that detecting and preventing fraud isn’t just a matter of minimizing losses, but also fueling growth. By developing robust fraud capabilities, you’ll be minimizing the single biggest issue affecting your fintech’s future. 

Want to learn more about how to use technology to improve your fraud detection and prevention capabilities? Listen to the recast of our webinar, Manual Reviews Are Killing Your Competitive Edge, on demand today or reach out to one of our experts to learn how Inscribe can help your business automate document reviews.