The pandemic has accelerated the shift to online channels, fueling adoption at an unprecedented rate and introducing a host of new risks. At the same time, the world is grappling with soaring inflation rates and the possibility of a global economic recession. This combination of high digital customer volume and uncharted risk presents a novel challenge to even the most sophisticated business operators.
For fintechs the stakes are high and the margin for error shrinks every day. With just one in four of the 11,000 fintechs expected to succeed, organizations need to take steps to strengthen resiliency and position their business for growth.
In a panel convened by Fintech Nexus (formerly Lendit Fintech USA), industry leaders suggested that one growth driver that is often underestimated or even overlooked is risk management.
Moderated by Inscribe co-founder and CTO Conor Burke, the session, “How to build a risk department of the future,” revealed four best practices for how companies can strengthen their risk management capabilities and help future-proof their business.
The ultimate goal of the risk management strategy is to approve more customers – through improved fraud detection, reduced losses, better, faster decision-making, and streamlined onboarding of qualified applicants.
At the same time, the risk management team cannot approach growth in an isolated way. They must work in collaboration with product and engineering teams in service to the organization’s growth goals.
“The risk strategy has to enable growth, especially in an early stage startup. Companies need to ensure the entire organization is aligned and that the business is operating in a transparent manner,” explains Srinath Srinivasan, Head of Risk at Ramp. “The risk management team must understand the organization’s growth goals and how they, in collaboration with the product and engineering teams, are working towards that goal.”
“The one and only role of the risk department is to support business growth in a responsible manner,” agrees Ido Lustig, CEO of bizi. “It's not product versus risk. Addressing risk should be like any other product request. When the business need exists, we have to build.”
As Sri points out, an important part of this equation is that the risk management team needs to be closely connected to the product and engineering teams and work together to design products, services, and features, as well as define underlying business processes.
Most fintechs are aware that the key to improving the accuracy of decision-making – especially when it comes to lending – is through data-driven insights. The question is: Where and how do organizations get that data? According to our panelists: Everywhere.
A comprehensive risk management strategy integrates multiple solutions from a variety of vendors. Through proper integration and configuration of such solutions, it is possible to enable a multi-faceted data strategy that will enhance decision-making across the business.
“The modern organization has access to vast amounts of data from a variety of sources that can be used to inform decisions,” explains Ido. “Organizations just need to connect the dots.”
Lei Chen, Head of Fraud Risk at Marcus by Goldman Sachs agrees. “The tools and solutions used by the risk management team need to be much more integrated with data from across the organization,” she says. “Information needs to be available to relevant stakeholders in one central location. Their workflow needs to be optimized so that activity, including manual reviews, can be done quickly and accurately.”
This integration is critical not just as it relates to approving and serving qualified customers, but monitoring customer activity and behaviors to identify fraud at any point of the lifecycle.
As consumers live increasingly digital lives, their expectations for fast, intuitive, personalized experiences continue to rise. Perhaps more importantly, a positive experience in one sector tends to raise expectations in all others. This means that when financial services companies think about their digital experience, they don’t just need to deliver the norm in their sector, but consider what the consumer has experienced across all online journeys, be it in retail, quick-serve restaurants, or even healthcare.
"In this landscape, companies need to be hyper-focused on delighting the customer because eventually the market goes up and down,” says Ashish Gupta, Chief Risk Officer at LendingPoint. “If you treat the customer in a way that builds loyalty, that will, in turn, influence your profitability and growth.”
At the same time, the shift to digital has undoubtedly increased risk for financial services companies. As such, organizations need to think about how they balance protecting the business with delivering an impactful customer experience.
“Financial institutions need to focus on two core issues: creating a seamless experience and strengthening fraud control,” says Lei. “For companies that can master these two areas, risk management is poised to become a strategic differentiator.
Traditionally speaking, fraud management was seen as a back-office functionality. In reality, it is a central and integral part of financial products that will greatly impact the customer experience.
As Lei explains, two of the main aspects of every fraud strategy – detection and verification – are tied directly to the CX. By improving detection accuracy, companies can reduce friction within the CX; by enhancing verification capabilities, they can provide enhanced self-service options that empower the customer.
As the market changes and risks evolve, so too must the organization’s risk management strategy. It’s important to remember that the strategy will also evolve depending on the company’s rate of growth and their position in the market.
“The balance between reducing risk and offering a superior customer experience can shift depending on the stage of the company,” explains Sri. “As risk leaders, it is important to recognize when that balance changes and how the organization responds. Do you change vendors? Do you change the solutions? Do you implement new policies?”
At the same time, the organization needs to recognize that the risk management function must be able to support the pace of the organization.
”The pace of new product launches has become much faster than what we have seen in the past,” notes Lei. “From a risk management point of view, we need to build a fraud risk management infrastructure and capability as a shared service model so that we can enable faster product launches and speed time to market."
For the 26,000 fintechs around the world, the second half of the year is likely to bring a fresh wave of challenges. But, as our panelists pointed out, there is a way to succeed. With a comprehensive risk management strategy and architecture, it is possible not just to manage a challenging landscape, but thrive in spite of it.
To learn more about how Inscribe can be part of your comprehensive risk management solution set and help your organization manage risk through advanced fraud detection and document automation, please reach out to schedule a personalized demo with an expert from our team.