One of the biggest disrupters in fintech has also set the bar high in terms of transaction safety and security. PayPal, which was acquired by eBay in 2002 for $1.5 billion, created a secure online payment platform that reduced card fraud and dramatically shifted the way we made payments online. While it did disrupt traditional banking, it also relieved credit card companies and merchants of endless clawbacks and disputes. For fintechs, funding seems to be easing up as the desire for safer financial transactions increases, which reduces the amount of red tape fintechs need to work through to launch.
Payment Automation Taking Off
Fintechs are relying on payment automation to reduce the amount of online and mobile fraud taking place. Research shows that around three out of four financial institutions are experiencing increasing losses due to fraud. An important component of automated payments is that they should still rely on the financial institution’s checks and balances to create a dual-layered security process. Payment automation also reduces fraud by reducing human interactions in the process. This also happens to reduce the number of mistakes, which can curb losses.
Collaboration Between Fintechs And Traditional Financial Institutions
The importance of the collaboration between fintechs and traditional financial institutions is never more evident than the initial startup phase. During this phase, the fintech is often exposed to copious amounts of risk, and traditional financial houses can assist with the initial compliance. An example of fintech and traditional finance collaboration is banks making use of credit monitoring services. According to Crediful, these fintechs can assist banks to reduce identity theft. For consumers, access to their online credit profiles proves useful, as it allows them to monitor any strange movement on their profiles. This information is also accessible to financial institutions and allows them to reduce fraudulent applications.
A Multilevel Approach To Fighting Fraud
While a single solution to fraud across the financial industry is welcome, there are too many vulnerabilities, which increases the need for multiple layers of security. Fintechs that have access to proper funding can spend enough resources on developing multiple layers of security, whether for consumers or financial institutions. As it is, traditional financial institutions that spot the merits in some of these fintech startups are starting to invest their own money into it. Major banks that have acquired fintechs did not necessarily “buy out” their competition, but rather used the technology as a complement to their existing service offering. The added layers of security rely on the progressive nature of the fintechs, plus the experience of the acquiring bank. 20% of the big banks in the U.S. have already started their acquisition spree to strengthen their market share. A happy consequence of these acquisitions is the boost in security.
While fintechs are often touted as disrupters in the industry, banks are starting to realize the importance of added infrastructure. Collaborations, acquisitions and automation all contribute to a reduction in fraud in the financial industry.