Fraud is Not the F-Word
Fraud prevention is not just a matter of competitive advantage, it's a collective responsibility.
Hi there,
The term fraud holds a negative connotation in today’s society. And while fear of dropping this “f-word” can be worrisome of reputational ruin, fraud has quickly become a career that many are making a large profit on.
According to the FTC, fraud cost consumers $8.8 billion last year (which is up 44% from 2021.)
When it comes to FinTech in particular, current statistics show that FinTech companies experience an average fraud rate of 0.30%, which is twice as high as the credit card fraud rate (0.15 to 0.20%) and triple the debit card fraud rate (0.10%).
As fraudsters continue to become more advanced, those in FinTech and financial industries need to gain a deeper understanding of the associated risks and what steps they can take to prevent fraud from impeding growth.
As Supreme Court Justice Louis Brandeis once said, “Sunlight is said to be the best of disinfectants.”
Fraud prevention is not just a matter of competitive advantage, it's a collective responsibility. And when it comes to strengthening fraud prevention, a critical initiative is transparency, through the sharing of both data and knowledge.
Data Sharing
Unsurprisingly, there is a bit of a stigma around the idea of sharing data. But by combining and analyzing data from multiple sources, FinTechs can identify common fraud patterns, detect anomalies, and develop a more robust detection model.
Collaborative data analysis can help uncover sophisticated fraud schemes that might be challenging to detect with individual datasets. If organizations can identify potential threats proactively instead of reactively, the chances of successful prevention are much higher.
At Unit21, we interviewed Brad Epstein, Head of Financial Crimes Compliance at Prime Trust to get his thoughts on this topic, and he notes that FinTechs shouldn’t be playing in an environment where the thinking is, “Well, as long as it's not on our platform…” because it still means it's still occurring on someone else's, which is bad optics for the industry at large. Consumer trust in FinTech products is impacted if fraud is occurring on anyone’s platform.
Ultimately, it is beneficial to work together to create a safer space for everyone.
Knowledge Sharing
While the benefits of knowledge-sharing are far-reaching, many are uneasy talking about their experiences. However, the intentional sharing of knowledge, both internally and externally, has the power to positively impact an organization’s ability to successfully detect and prevent fraud.
By pooling knowledge and experiences, FinTechs can make informed decisions, create innovative strategies, and focus on how fraudster mindsets might evolve based on the methods that have worked for others who are also in the field. Fostering an internal culture of collaboration within departments through open communication, transparency, and coordination is essential to effectively combat financial crime.
It’s also essential to note that the concept of sharing knowledge doesn’t start and end within the organization.
One of the strangest aspects of our industry is how resistant companies are to collaborating with other companies on preventing fraud. And the people profiting most from this are fraudsters. Banks and consumers are projected to lose $48B this year to fraud. (That's a great business for fraudsters!)
FinTechs should get into the practice of sharing information about known fraudulent activities, suspicious patterns, or emerging threats externally to help the industry at large. A community of members who share information about fraudsters for the greater good of making the world a safer and more just place for all.
What’s Next?
In the world of Fintech, it's crucial to take a proactive stance.
To support this objective of surfacing shuddered strategies, tactics, processes, and best practices, Unit21 has been heavily invested in projects like the Fintech Fraud DAO, (a network of financial institutions that pool their data to help identify patterns of suspicious behavior in real time) and the Fraud Fighters Manual, which has been authored by fraud experts from Brex, Mercury, Lithic, Pinwheel, Treasury Prime, Nibiriu, and Unit21.
Together we must dismantle the barriers that prevent us from taking collective action. Fraud is not just a balance sheet problem. It is one of the biggest hindrances to progress. Only then can we gain ground in this ever-present battle.
Cheers,
Trisha Kothari
Co-founder & CEO of Unit21, Empire Startups Contributor
The Empire Startups Contributor Model is a chance for writers and thought-leaders in the FinTech space to share their ideas and expertise with our ever-growing audience. Our model is is merit-based and does not offer monetary compensation.
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