While you’re working hard to grow your fintech company and bring in customers, others are scheming to dishonestly get their hands on some of your money.

Fraud has effects well beyond the money out the door. One study determined that, for financial services companies, $1 in fraud cost $4.45 in 2023. Some of the costs are operational, such as dedicated fraud prevention teams. Others are hard costs, such as lost revenue chargeback fees. Still others are opportunity costs: innovations, campaigns, or customer segments (such as countries or types of SMBs) that could not be pursued for fear of fraud. All of these types of costs are a drain on progress toward growth goals.

How fraud impacts new product signups

Fintechs spend a lot of money to acquire customers. One benchmarking study determines a $202 average customer acquisition cost for B2C fintechs, with much higher levels for B2B.

Sign-up bonuses (SUBs) are a common and practical way to stand out in a crowded field and encourage people to try your product. The hope is that enough people incentivized by the bonus stick around and become profitable customers. Done right, acquisition campaigns touting SUBs can cost less than marketing activities without such an incentive.

Unfortunately, fraudsters show up faster than ants at a summer picnic when you're giving away money. They start with either stolen identities acquired from the dark web or synthetic identities that blend real and fake demographics. They’ll sign up for your service, do the minimum required to achieve the SUB, then flee with the funds. (Individuals certainly take the bonus and run too, but as long as they’re following the promotion terms, it’s not exactly fraud. The effect on your marketing spend, however, is similar.)

If you offer referral bonuses, you have opened up another channel for abuse: one bogus account can share its code with another and drain that much more money from your marketing budget. This type of bonus can invite first-party where people using their true identity create extra accounts (or encourage friends and relatives to do so) to rack up lots of referrals.

In addition to the hard cost of bonus payouts that don’t turn into actual customers, you’re also wasting whatever advertising spend might have drawn them in— if they clicked on an ad to find your offer, you have to pay for that, too.

How fraud impacts loan origination goals

Providing loans is a great way to make money. They’re also an easy way to lose it when your fraud prevention measures are insufficient or overly broad.

As with SUBs, third-party fraudsters typically use stolen or synthetic information to apply for financial products such as credit cards or term loans. Of course, they have zero intention of paying anything back, and the lender is now out underwriting fees, cost of the loan, and much more, including reputational damage. 

The risks for buy now, pay later (BNPL) accounts are even higher. When purchases are inevitably set up to be repaid by a stolen credit card, you’re liable to be charged back for the payment. This means that, in addition to losing the entire loaned amount, you’ll go through a painful process that involves fees and hassles.

It’s not only new accounts you need to monitor for fraud. Existing accounts are subject to account takeover (ATO) through credentials stolen from data breaches, phishing attacks, and the like. BNPL is a particularly appealing ATO target, because an account with a healthy track record might be afforded generous credit for new transactions. 

Because first payments aren’t due for weeks or months, it may take a while before the lending institution realizes it’s not getting paid back.

Another way to not get paid back for a loan is to not originate it in the first place. You can’t make money as a lender if you’re not making loans, yet a classic response to the fear of fraud is tightening lending criteria. For example, if you raise income requirements or add more verification procedures, you risk losing out on offering loans to legitimate customers. 

How fraud impacts transaction thresholds

Transaction limits exist to restrict the volume of fraudulent money movements. They’re also a significant inconvenience to the very people who could be your biggest customers, which could impact your growth goals.

Many fintechs, such as neobanks or BNPLs, are wary of big moves by new accounts, so they restrict how much money new account holders can move. For example, new bank accounts may only be allowed to transfer or deposit a certain amount of money each day, with transactions often delayed for review. Other limits may include caps on debit card withdrawals or cumulative balances on credit accounts. As the customer builds a pattern of behavior, the fintech may incrementally loosen limitations. But until then, the limitations on their own money can result in a lot of frustration for legitimate customers, and understandably so. 

Transaction threshold policies dampen the appeal of opening new accounts to fraudsters because it takes time and effort to achieve limits high enough to operate at meaningful scale. But it also inconveniences real customers, who could churn to a more permissive competitor or even write negative reviews. 

How fraud impacts fintech innovation

The fintech industry's core premise is to develop new ways to put money to work. However, fraud — both real and feared — limits the innovative spirit.

One simple but important impact is on attention: time spent anticipating and addressing fraud is not spent on other parts of the business. Because any idea around moving money needs to be thoroughly hardened against fraud, many useful ideas never get off the ground, and those that do are often delayed and watered down. Companies might add a manual review step to a product that could be completely automated, adding expense and slowing onboarding at the very moment when a new customer is most engaged.

The FDIC bears this impact in a study showing that more innovation is correlated with more loss from fraud. The practical effect is that fintechs often have to decide how much fraud they will tolerate for growth.

How device intelligence supports fintech growth

With online transactions, you can’t be sure the customer is who they claim. But with a comprehensive device intelligence platform like Fingerprint, you can know a lot more about them, including where they are, if you’ve seen the device before, and, crucially, if it’s exhibiting suspicious behavior or characteristics. .

When set up on a fintech’s site or app, Fingerprint collects 100+ signals in the background, assigning a unique ID for every visiting device. It sees through common cloaking techniques such as VPNs and incognito mode to recognize previously seen devices. Fingerprint can help enforce blocklists, identify and block bad bots, and detect behaviors that can indicate fraud, such as one person from opening multiple accounts. On the flip side, by confidently recognizing returning devices, it allows trusted customers to bypass additional security checks like MFA or OTPs, streamlining their experience on your site or app.

Learn more about how Fingerprint can help your fintech company reach its growth goals.