Expansion is a logical next step for a growing e-commerce business or Financial Tech (FinTech) venture, and it can involve exploring new markets—including those on the other sides of the border. But while it is a natural progression, it is also fraught with challenges, one of them being the so-called “cold start” problem.
This cold start problem occurs when an organisation looks to do business in a new locality but either has no existing customer base just yet or no supplies to conduct its dealings (or, in some cases, both). Think of it like starting an engine that has been out cold for quite a while or trying out something even without prior knowledge of how to do it. This issue can lead to a variety of problems, like the obvious possibility of the business failing to pick up in the new market, or even worse, getting exposed to all manners of fraud.
Read HERE about Upgrade, a FinTech company that has delivered over USD $10 billion in credit in just six short years and reduced fraud at the same time.
In a new marketplace, “cold start” businesses will have little knowledge of who the customers are, what their preferences, behaviours or histories may be, and most importantly, whether they are “legit”, so to speak. Without prior customer data, these businesses are typically forced to invest heavily in marketing and advertising efforts to attract new customers. However, the lack of customer insights means that these efforts may not yield the desired results, resulting in poor returns on investment.
It also becomes much harder to verify customers’ identities and prevent abuse. For instance, fraudsters can easily create fake accounts and carry out fraudulent activities, thereby increasing the risk of financial losses for the business. The prevalence of fraudulent activities can also lead to the abuse of promotional offers and discounts, resulting in lower profit margins and reduced revenue for the organisation.
Businesses can try to prevent such activities by putting in a lot of checks and stepping up authentication and verification processes. However, this will likely end up creating hassle and friction that may actually drive customers away.
This is why you need to put in place effective anti-fraud strategies early on so you can confidently scale and transact with every and all customers, knowing that you will not be victimised by fraud. Fraud avoidance is especially critical to businesses looking to expand and/or go cross-border, as fraud is costing businesses in the Asia Pacific region an average of about USD $4 per transaction, according to data from LexisNexis® Risk Solutions. In Southeast Asia, in particular, companies lose 1.6% of their total revenue to fraud every single year. Exacerbating matters is that attempted fraud in the region is up to 12 times more common in this part of the world than anywhere else.
These challenges put the onus on establishments, whether a merchant or a FinTech venture, to prepare as best they can to counter the various forms of fraud that may come their way as they explore new opportunities. Otherwise, they risk not only financial but reputational losses as well—a bane for ventures looking to grow and tap into new markets.
In this regard, organisations will need to evaluate their current fraud prevention methods to determine whether they are capable of verifying customers without creating unnecessary friction. If your current system falls short, you may need to take steps to improve your capabilities to stop fraudsters in their tracks, no matter how much or how quickly your business grows.
Such is the case, for example, of the FinTech Upgrade. An upstart just six years ago, Upgrade has become one of the leaders in the FinTech space, delivering over USD $10 billion in affordable and responsible credit to mainstream consumers since 2017. As part of a vertical highly prone to fraud, Upgrade enlisted the help of Ekata, a global leader in frictionless fraud management, for a reliable identity verification and fraud detection solution—but without disrupting the user experience.
Don’t have enough data (yet) to combat fraud effectively? No problem.
Among Ekata’s proprietary solutions is Ekata Identity Engine, which is composed of two distinct and mutually exclusive data sources: Ekata Identity Graph and Ekata Identity Network. The purpose of having these data assets is to validate not only the identity of the elements used but also how they interact with and behave in digital interactions. Small wonder that this Ekata-Upgrade partnership has been successful, with Upgrade’s false flagging rate reduced by 21% and the customer onboarding process kept as friction-free as possible, thus resulting in additional revenues for Upgrade.
Such is an outcome that organisations should aspire for and take proactive steps to ensure—and, in the process, allow for a much smoother cross-border expansion. The good news is that, for the most part, finding the right anti-fraud partner is a step in ensuring that outcome, as Upgrade did in collaborating with Ekata.
Discover how quality data provides the backbone of any fraud detection system and how Ekata met Upgrade where it needed to be throughout its growth. Don’t miss out on this valuable resource – click the button below to download the case study.
