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4 Ways to Keep Fraud from Derailing Your Growth

During an earnings call this week, PayPal admitted that 4.5 million of its account sign-ups were fraudulent. If you ever needed proof that FinTech fraud is out of control, this was it. Following the call, PayPal’s stock dropped 25 percent.

One key lesson here is that if you are leading a FinTech or a crypto company, you can’t let fraud blindside you. It will be a costly oversight.

Stories like these are why we at Sardine designed our fraud prevention platform from the ground up. Our proprietary, behavior-based fraud prevention platform can detect fraudulent sign-ups — whether they are made by bots, data centers, emulators, virtual machines, and mobile device farms — before they can cause damage.

With PayPal’s challenges in mind, I thought I’d share a few thoughts about how FinTech and crypto founders can prevent their customer acquisition programs from getting derailed. Here are 4 ways for FinTech leaders to keep fraud out of the equation:

1. Add fraud rates to your Customer Acquisition Cost (CAC) to Lifetime Value (LTV) formula

When you design growth campaigns, whether it’s paid ads or referral bonuses, it’s important to include guardrails to detect fraudulent account openings.

Too often, the CAC-to-LTV formula used internally doesn’t include the cost of fraud or the cost of servicing fraud. And there’s no point in launching a growth program if you have a leaky funnel or if most of your CAC dollars are going straight into fraudsters’ pockets.

2. Incentivize with premium features instead of cold cash

Referral campaigns can be a great way to acquire customers. However, when the incentives are financially based, then it becomes much easier to game the system.

Instead of offering both the referee and referral $5 for a sign-up, give them both some credits for using your product instead. A few examples might include offering $5 of free instant foreign exchange (FX) conversions, 5 free ATM withdrawals, or 5 fee-free crypto transactions.

3. Align your internal stakeholders by using proper metrics

Unfortunately, many FinTechs have Growth teams that are often at odds with their own internal Fraud teams. If you are the CEO, then the best thing you can do to keep your growth intact is to align your teams’ incentives from the very beginning.

For example, if your fraud team only cares about reducing the fraud rate, that’s just half the battle. Meanwhile, if your growth team only cares about increasing sign-ups (without looking at the quality of those sign-ups), that’s also just half the battle.

The answer is to align incentives by having company-wide metrics that balance both growth and fraud rates. Here’s one example: Reduce and maintain fraud rates at less than 20 basis points (BPS) while increasing the 90-day LTV from the current $80 to $100.

4. Place your organizational structures in alignment

Whether it’s fraud or company culture, alignment is often only achieved by having an organizational structure that encourages your teams to work together.

For instance, when I was at Coinbase, my Data Science team was ultimately renamed to “Risk and Growth,” and we became responsible for both maximizing the metrics around the company’s referral programs as well as minimizing the fraud rates. Another way to achieve this level of unity could involve having both leaders of the Fraud and Growth teams report to the head of a business unit.

As this week’s revelations at PayPal show, fraud can be challenging to detect, no matter how big or small your FinTech company is. By adjusting your priorities with fraud in mind and by working with a partner that’s built to stop fraud in its tracks, you can keep your focus on safely growing toward your goals.

FraudFraud Detection

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About the author
Soups Ranjan
Co-Founder, CEO