Many fintechs offer “free cash” referral schemes similar to PayPal, which fraudsters are particularly fond of and use bots to capitalise on. Threats aside, PayPal’s compliance breach raises other critical questions.įor instance, how many of the users reported by European fintechs are fakes or “illegitimate”?
He cites instances where fintechs experienced 30 people trying to defraud them within 24 hours of launching on the app store. “They can operate internationally and use structural flaws in identity systems or credit reference systems that they’ve seen in others.” “Fraud gangs will systematically target new fintechs with mechanisms that have worked elsewhere,” Delingpole says. It’s an arms race in that every single component of the value chain… has flaws that can be exploited by fraudsters.”Īnd while the big neobanks have their work cut out trying to quell the issue with huge teams, Delingpole warns that it’s new fintech entrants which are most likely to face attacks. “There are still many ways of undermining that process.
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“Online verification is not perfect,” he tells Sifted. And banks are coming to the fight with sticks, while criminals have lasers.”īanks are also, frankly, not motivated to fight each individual case companies are simply required to follow basic compliance rules rather than to pre-empt fraud, explains Hauer, giving fraudsters the upper hand.įinancial fraud also soared during the pandemic with in-person verification all but removed, explains Delingpole. Hauer agrees that financial companies are struggling to keep pace: “All crime has a digital transaction. Scores of fake accounts then go on to take out loans or abuse sign-up bonuses with third parties, creating a snowball of fraud loss. One issue is that there are now rings of fraudsters who “create multiple fake identities using data sourced from breaches and fictitious data,” he explains. “It is harder than ever to detect illegal activity,” says Dimitrie Dorgan, a senior fraud specialist at Onfido, the identity verification startup. The risk now is that European top fintechs could also be vulnerable to a PayPal-style debacle.Įxperts warn that the fraud issue is getting worse as fraudsters are getting smarter. Starling has so far stayed out of the limelight, but declined our request to discuss compliance. Data from the UK’s Financial Ombudsman reveals that in 2020, almost 1,400 complaints were brought against Monzo for account closures, and 1,586 were made against Revolut. Others have resorted to hyper-aggressive monitoring of customer accounts, which has led to indiscriminate, unnecessary account closures, creating a large backlog of appeals. It’s insane to have 1,000 people just on that,” he adds, speaking in his new role as COO of Hawk:AI, a compliance startup which relies largely on artificial intelligence. And the only way they currently see to fix it, is to hire more people. “The challenger banks have had to become stricter. Hiring is one solution - Revolut’s compliance team swelled to 600 people last year. But that’s an expensive price to pay for growth, argues Hauer.
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