One of the most notable developments? A tremendous increase in fraud within the fintech and financial services industry.
As more activity takes place online and cyber criminals become more sophisticated in their techniques, digital fraud has now become commonplace with the banking, cards and payments sectors racking up an estimated $385 billion in global losses in 2021. This increase coincides with a looming economic recession, painting a challenging landscape for financial services companies and prompting many to find new and innovative ways to strengthen their risk management capabilities. But how?
This was the topic of discussion at a panel convened by Fintech Nexus (formerly Lendit Fintech USA). Moderated by Inscribe co-founder and CTO Conor Burke, the session, ”How to build a risk department of the future,” revealed five winning strategies for how companies can manage risk in a way that not only protects the business, but helps it grow.
In the modern world, a lot of risk can be addressed through digital technology and a robust integration and configuration strategy. In practice, that means risk managers must assume a tech mindset.
“I truly believe that risk managers need to be tech-focused,” explains Ashish Gupta, Chief Risk Officer at LendingPoint. “They need to ask what they can do differently to address the risks earlier and more effectively and, ultimately, strengthen the position of the company. Having a product and tech mindset is having a growth mindset.”
Lei Chen, Head of Fraud Risk at Marcus by Goldman Sachs concurs: “Teams need to strengthen the capabilities that enable fraud agents to enhance their performance. Tools need to be integrated so that people working with data have all the information they need in one place. This is what will optimize the workflow and improve both speed and quality across operations.”
Risk management isn’t just about improving fraud detection or reducing losses anymore. It's about fueling business growth.
To that end, risk management teams need to think about how they work with product and engineering teams to design products, services, and features, as well as define underlying business processes to simultaneously solve business issues, enhance the customer experience, reduce risk, and enable growth.
“The risk team is only one part of the equation,” explains Srinath Srinivasan, Head of Risk at Ramp. “The product and the engineering teams are instrumental in defining and executing the company’s risk management strategy.”
Lei agrees: “Education, teamwork and collaboration are so important to the successful deployment of the risk management strategy,” she says. “Product and engineering teams may not understand the modern fraud landscape or how to design products and services that will mitigate risk.”
The risk management industry has grown rapidly over the past five years – a trend that is likely to continue in the coming decade as even more of our lives become entwined in the digital world.
Despite the proliferation of vendors, no single risk management solution on the market offers complete protection and it is very unlikely that such a product will exist in the future. As such, organizations must adopt multiple defenses and integrate them into a single platform to provide comprehensive coverage.
Srinath refers to this concept as a “Swiss cheese strategy.”
“No single vendor on the market, no single data source can prevent 100% of fraud, 100% of the time,” he says. “There will be holes in every solution. So when I say companies need to create a ‘Swiss cheese strategy’, the idea is that they should adopt a variety of solutions and line them up in a way that there are no gaps in coverage.”
Ashish agrees. “No one believes there is or ever will be a silver bullet that will eliminate risk. What is important is to have a sophisticated platform, where are you pulling multiple data sources about the customer in real time – their buying history, shopping history, and so on – to understand their behavior and use it to constantly update their risk profile.”
Relying on multiple solutions – assuming they are integrated and configured properly – also enables a multi-faceted data strategy that will enhance decision-making.
“In a platform model, companies can gather more data points from a network of vendors that will help the business improve the accuracy of their decisions,” notes Ido. “A robust data strategy is what will help stop the industry from lending money to the wrong entities."
Fraudsters are constantly evolving, which means that risk management teams must always be innovating.
According to Ido Lustig, CEO of bizi, some risk managers may inadvertently fall into the trap of solving for the problems they know to exist, using a strategy that worked in the past. But in a rapidly evolving risk landscape, they need to push beyond their current worldview.
“In the modern environment, there are issues that even the most experienced risk manager may be unaware of – which means they won’t be able to identify a solution that addresses the need,” says Ido.
To that end, financial services companies need to bring together cross-functional teams to help fill individual gaps in experience. This is especially important for smaller companies and startups, since any form of disruption can eat away at limited resources, including cash.
This is even more critical during times of a recession or economic downturn.
“If you are a smart startup, it’s important to limit expenses and costs,” explains Srinath. “Surviving for the longest period of time is the goal of every startup. The less risk you have, the more capital you have, the more opportunities will open up.”
While the world may be on the brink of another economic downturn, financial services companies can take deliberate steps to help protect their business and their customers.
To learn more about how Inscribe can be part of your “Swiss cheese strategy” and help you manage risk through fraud detection and document automation, please reach out to schedule a personalized demo with a member of our team.