Promotional campaigns that leverage sign-up bonuses, referral rewards, loyalty discounts, etc. have proven to be effective ways for fintechs to increase their user base. But promo abuse that affects how businesses onboard customers is threatening that channel, according to a new report.
A significant amount of fraud attacks aimed at fintechs come from accounts that are one day old or less. And the study, conducted by Paytm Labs, notes that when the legitimate users connected with those accounts find out, 32 percent are “very likely” to stop using the fintech service and close their accounts.
Fraud vs. Friction: How the need for speed is creating a user onboarding crisis notes that while this type of abuse is rife across the entire fintech industry, it is likely to be felt more acutely by growth-stage businesses. Each incident of onboarding fraud is a cost that fintechs themselves must bear, making fraud risk a critical consideration for potential investors.
“Fintechs are exposed to more risk than ever before, but slowing down isn’t an option,” said Harinder Takhar, CEO of Paytm Labs. “Adding more friction into the onboarding process in the form of additional checks could be disastrous for companies at a time when they should be pursuing growth and improving the overall customer experience. What’s needed is the ability to handle real-time risk assessments at the same breakneck speeds that the typical modern fintech demands. Ideally, no fintech should have to compromise on its growth objectives in the interests of security—and vice versa.”