Why every fintech needs a fraud strategy before a growth strategy

For fintechs, growth is exciting, but it can also attract a growing fraud problem. As scams become smarter, companies need to build strong fraud defences before they chase the next wave of customers.

In Short

• Fraud now includes AI, deepfakes and synthetic identities
• Onboarding is the new frontline where fraud strikes first
• Layered identity checks replace simple document verification

For fintechs, growth is usually the number everyone watches. More customers, more transactions and more products mean the business is moving in the right direction. But there is another number founders cannot afford to ignore: how much fraud is getting through.

As financial services move further online, fraudsters are keeping pace. What once looked like a simple phishing scam can now involve deepfakes, fake identities, stolen phone numbers and AI-generated documents.

That is why fraud prevention is no longer something fintechs can bolt on after they have grown. According to Abhinav Parashar, Co-founder and CEO of Digio, companies need to build trust and security into the customer journey from the start.

FRAUD HAS BECOME SMARTER, FASTER AND HARDER TO SPOT

The fraud landscape has changed sharply over the past few years. Basic phishing and social engineering remain common, but fraudsters are increasingly using technology to make their attacks more convincing and scalable.

“The fraud landscape has evolved significantly over the past few years. Earlier, digital fraud was largely driven by relatively less sophisticated methods such as basic social engineering, phishing, and presentation attacks,” Parashar said.

Today, the list is much longer. SIM-swap attacks, deepfake impersonation, synthetic identities and identity manipulation are becoming part of the fraud toolkit, Parashar added.

Generative AI has made the problem even more difficult. Fraudsters can create convincing documents, faces and identities faster than before, making it harder for traditional checks to separate genuine customers from bad actors.

The result is a shift in how fintechs need to think about fraud. It is no longer enough to wait for a suspicious transaction and then investigate it.

FRAUD CAN STRIKE EVEN BEFORE YOU BECOME A CUSTOMER

Perhaps the biggest change is where fraud is happening.

Earlier, fraud prevention was often focused on protecting accounts and stopping suspicious payments. Now, fraudsters are increasingly trying to enter the system at the very beginning — during customer onboarding.

“One of the biggest shifts we have seen is that fraud is moving further upstream in the customer lifecycle,” Parashar said.

This matters because a fake identity that successfully passes onboarding can potentially be used across several products and platforms.

By the time a fintech notices unusual transactions, the fraudulent account may already have been active for some time.

That makes the first interaction with a customer extremely important.

WHY IDENTITY CHECKS ARE BECOMING THE FIRST LINE OF DEFENCE

For fintechs, knowing who is actually entering the system is becoming as important as monitoring what that customer does afterwards.

Parashar said companies are increasingly moving towards ‘layered fraud prevention systems’ that bring together several signals rather than depending on a single check.

These can include document verification, biometric authentication, liveness detection, device intelligence and behavioural analysis.

The idea is fairly simple: instead of asking whether one document looks genuine, fintechs need to build a broader picture of whether the person behind the application is genuine.

This approach can also help companies detect suspicious behaviour as it develops rather than waiting for a fraudulent transaction to take place.

AI IS CREATING A NEW FRAUD ARMS RACE

Artificial intelligence is becoming a double-edged sword for the financial sector.

On one side, it gives fraudsters better tools to create convincing identities and impersonations. On the other, fintechs can use technology to spot patterns that may be difficult for traditional systems to detect.

This is pushing companies away from rigid, rule-based systems towards real-time risk assessment.

Parashar said organisations are now looking at a combination of identity, biometric and behavioural signals to make better decisions.

The challenge is to make these systems strong enough to stop fraud without making the experience frustrating for genuine customers.

SO, HOW MUCH SHOULD A FINTECH SPEND ON FRAUD PREVENTION?

There is no magic number.

A payments company processing millions of transactions will face a different level of risk from a small wealth management or lending platform. The right investment will depend on the product, transaction volumes, customer acquisition methods, regulatory requirements and the company's exposure to fraud.

“There is no one-size-fits-all investment benchmark for fraud prevention,” Parashar said.

But treating fraud prevention simply as another cost can prove expensive.

Under-investing can lead to financial losses, regulatory problems, higher operational costs and, perhaps most importantly, a loss of customer trust.

At the same time, going too far in the other direction can hurt growth. Excessive checks can frustrate genuine customers and lead to legitimate applications being rejected.

For fintech founders, the real challenge is finding the balance.

THE FRAUD SYSTEM SHOULD NOT BECOME A GROWTH KILLER

Imagine a genuine customer trying to open an account. If the verification process takes too long or asks for too many steps, that customer may simply give up.

On the other hand, making onboarding extremely easy without sufficient checks could open the door to fraud.

This is why fintechs need to look at both sides of the equation.

“The most effective approach is to continuously measure the trade-off between risk reduction and customer experience,” Parashar said.

Founders should therefore track more than just the number of fraud cases stopped. They should also look at false-positive rates, customer approval rates, verification completion rates and the time it takes to onboard genuine customers.

A system that blocks every suspicious-looking application may appear effective, but it could also be turning away valuable customers.

THE REAL GOAL: KNOW THE GOOD CUSTOMER FROM THE BAD ACTOR

For a fintech, fraud prevention ultimately comes down to one question: can the company tell a genuine customer from someone trying to exploit the system?

That sounds simple, but it is becoming harder as fraud techniques become more sophisticated.

“The goal is to build a system that can accurately distinguish between genuine customers and bad actors,” Parashar said.

This is where technology, data and human oversight all come together.

The strongest fraud strategy is not necessarily the one with the most checks. It is the one that can identify genuine risk without making life difficult for genuine customers.

WHY FRAUD STRATEGY SHOULD COME BEFORE GROWTH STRATEGY

For fintech founders, the temptation is understandable: acquire customers first and strengthen systems as the business gets bigger.

But fraud does not necessarily wait for a company to mature.

A weakness in the onboarding process can become a much bigger problem once thousands or millions of customers enter the system. Fixing that weakness later can be far more difficult than building the right controls from the beginning.

As Parashar puts it, founders should see fraud prevention as a business enabler rather than a cost centre.

The message for fintechs is therefore clear. Growth may bring customers through the door, but a strong fraud strategy helps ensure that the people coming through that door are who they claim to be.

In the race to grow, trust may be the most important thing a fintech can scale.

- Ends