A new study has found that 71% of customers are less likely to trust a fintech service affected by onboarding fraud. Onboarding fraud, also known as promo fraud, occurs when threat actors exploit promotional efforts such as sign-up incentives, referral rewards, or loyalty discounts to defraud organizations on a large scale.
The study found that 47% of respondents viewed a fintech that allowed promo fraud to go undetected as being careless about security.
Promotional programs are still seen as a successful growth tactic, with 66% of respondents saying they would choose a finance platform with a discount code over one without. However, this creates a dilemma for risk managers who must balance expansion objectives with security. The study found that 48% of fraud incidents come from accounts that are less than one day old, highlighting the danger of incentivized growth techniques.
Fraud risk also can impact a company's current customer base, with 32% of existing consumers being extremely likely to discontinue using a fintech service and cancel their accounts following any occurrence of fraud.
Additional checks can help mitigate onboarding fraud, but the study also found that seamless onboarding is still a top priority for customers. More than 70% of respondents said they would leave the sign-up process if they had to go through more than three identity verification checks.
The study used PayPal as an example of the damage that promotional fraud can cause, noting that the company was a victim of account opening and onboarding fraud in the first half of 2022. As a result, more than 4.5 million fake accounts were created, leading to a 25% drop in PayPal's stock value, the most significant single-day decline on record. Onboarding fraud is a significant cost for fintech companies and a major factor for potential investors.
Using artificial intelligence (AI) based eKYC verification solutions, which utilize machine learning and AI algorithms to verify documents, IDs, and provide complete identity verification, can help secure digital platforms from the beginning of the sign-up process. As most fraud cases are detected within a few days of login, screening solutions can help protect against fraud from the start.