Should FinTech companies factor fraud and compliance costs into customer acquisition and growth plans?

This interview is conducted by our FinTech Growth Strategist, Diana Dalkevych.

Market expansion: why following others fails

Diana:  What are you working on now?

Katia: I consult payments companies that need help with particular tasks. Sometimes that means starting negotiations with a bank, sometimes launching in a market or analysing a new market.

I’ve been taking on individual projects and working independently. I also spent more time at conferences and networking events, met people and worked on smaller projects with them. The market felt unstable and difficult to understand, so a lot of the work was about particular tasks and particular markets.

Diana:  What are you seeing when companies decide where to expand?

Katia: A lot comes back to regulation and uncertainty about how a market works.

Every year, companies try to add another geography. They may already have a stable business somewhere, or they may have had to close another market. Then the question becomes: where do we expand? They start looking at new markets, but they don’t necessarily understand how those markets work.

I watched companies move towards Latin America. Everyone went to Brazil, then people started running towards Mexico. Someone goes first, and everyone else follows.

My reaction is: why are you all running after each other? Put a team together and analyse the market.

It’s the same pattern: someone has gone there, so the next company decides it should go there too. But you still have to understand what you’re going to do in that market.

People meet at conferences and tell each other how well everything is going. But when you look at the companies they’re following, you have to ask how long those businesses have been building their position and what resources they have.

You see their stand, their PR and their marketing. You don’t see all the numbers behind the business.

Diana: What can go wrong when a company starts with an incomplete understanding of the market?

Katia: You need to understand what you will be allowed to do there and what business you can build within those conditions.

Imagine you hire a lawyer because you don’t understand a jurisdiction well enough yourself. The lawyer tells you that you can get a licence in one region and operate across the market. You’ve hired a specialist, so you expect to be able to trust that advice.

You spend months getting the licence. During that time, you’re spending your own money, the specialist’s time and the team’s time. Then you discover that the licence only covers a particular region, where the audience available to you is much smaller than you expected.

You sit there thinking: what happened? You thought you were entering the whole market, and now you’re looking at a much smaller business. But that was something you needed to understand at the beginning of the process.

You can read some information yourself or ask ChatGPT. Understanding how the system works requires people who know that market.

Diana:  What would you say to someone who wants to launch a casino?

Katia: People come to me regularly saying: “We have money. Let’s launch a casino.”

I understand something about how the business works internally, and I personally wouldn’t do it, whatever money I had.

It’s a very difficult business to enter now. You’re competing with companies that have been growing for years and have enormous resources. There are already so many casinos and platforms. Someone who has been building a business since the 1990s understands that system from the inside.

Having money to launch doesn’t mean you understand what you’re entering. Some of the companies people try to copy have been building their businesses for decades.

You have to understand how they got there, what they have behind them and what it would take for you to compete.

Diana: Would you put your own money into FinTech at the moment?

Katia: Honestly, I would probably buy some property or a farm.

FinTech feels too fragile to me at the moment. There are several parts to the system. When 1 part is having problems, you can sometimes find people who understand it, speak to the bank and work out a structure.

Right now, it feels as if something is going wrong in several parts at once, and people don’t know what to do.

AI is part of that concern for me. People are introducing tools before they understand the product or how to work with the tools. Then those problems accumulate and eventually show up in a project or a task.

Marketing and external teams

Diana: Where does marketing tend to get stuck in a payments company?

Katia: Marketing is frequently assembled at the last moment. Sometimes the owner initially thinks they don’t need it. A year or 2 later, they start asking: if people don’t know about us, who is going to bring us business?

In my experience, many founders focus on the licence, the banks and the technology. Fewer understand marketing well or want to spend time on it.

I know the staffing problem from my own experience. I’ve spent years constantly looking for people because I don’t have enough hands or enough capacity to close all the tasks. At the same time, you have to keep up with updates.

There are always updates, changes to the website and new things to add. Now companies are also trying to introduce AI, while some haven’t even built the team or allocated resources to work with it.

Diana: Why might a company work with an external team while it is still hiring?

Katia: If a head of marketing has a task to complete and no team, where are they supposed to get the work done? They go to the market and look for people.

They can hire contractors who understand the work and have relevant cases. Or they can hire employees.

But hiring someone means finding them, bringing them into the company and helping them understand the work. Someone still has to spend time with that person and work through the details. And often, 1 person won’t be enough.

You may need a copywriter, someone for UX and other specialists — perhaps 4 people altogether. Building that team takes time.

Meanwhile, you may have to launch something in 6 months, or even in a month.

If an external team understands the problem and can do the work, there is a reason to hire them.

Diana: What does a company need before it starts selling?

Katia: Having lawyers working on a licence doesn’t give you everything you need to present the product. You need to show what you offer. To show it, you need to design it. And to design it, you need to understand the market and the customer.

There are tasks a payments company will have to deal with: its website, its LinkedIn presence, its marketing strategy and its market research. There is competition, and the company needs something it can use to present what it does.

If you’re entering Latin America, you need to understand the individual countries. Brazil and Mexico require their own analysis.

The money may be there. The question is whether the company understands why it needs to spend it. If it postpones the work for a year or 2, it can end up paying more to do it later. These are tasks it will still have to complete.

Diana: Can the company’s stage tell you what support it will need?

Katia: You can never predict it exactly.

You need to look at the type of business and what its focus is at that moment. Even licensing is different from one business to another.

A company may be developing cards today. Tomorrow, a licence comes through and the product or market focus changes. Suddenly, the team needs something different.

You don’t know at the beginning whether a relationship will be short or long. It’s difficult to predict.

Diana: What should a FinTech team look for when choosing a contractor?

Katia: For a FinTech company, getting an app built can be a headache. They’re looking for contractors, designers and UX specialists, and they struggle to find the people they need. They may pay one team, get work they can’t use, then go to another team and pay again.

A case can explain what the company needed, where it was getting stuck and how the team delivered the product. That gives people something concrete to look at when they’re trying to understand who can help with their own problem.

People need to understand how to choose. Before making an advance payment, they should know which questions to ask and what evidence to request. A useful checklist should help them evaluate a contractor, whichever company they eventually choose.

AI without understanding

Diana: Where do companies go wrong when introducing AI?

Katia: People introduce AI before they understand how to work with it.

They decide it’s a good idea and start connecting every possible AI tool across the company. But who has worked out how those tools should be used? It still takes people’s time and the company’s money.

I use a tool that costs €20,000 a year. It can produce a report of, say, 180 pages on a particular question. But someone still has to sit down and read it.

You might find that 100 of those pages have little to do with your project. You still have to research, check, understand and think through the information.

I see it even with small tasks. Say I ask someone to choose a hotel. They send me a ChatGPT answer, and I read it and ask: did you at least go to the booking website? Did you look at the information yourself?

The answer might be based on a review from years ago, or it might give you a view that isn’t supported by the information. You have to check it.

The same thing happens at a bigger scale. One person produces a report, and the next person thinks: I don’t need to check it, this colleague has always done good work. They trust the person who sent it, but that person may now be putting together information generated by AI.

Those individual situations add up.

Diana:  What makes that harder to manage as a company grows?

Katia: If you have a company with 300 people, you can’t personally check what every manager is doing. Even keeping track of a leadership team of, say, 20 people takes an enormous amount of time.

You may not know how someone in the company is using a tool or what information they’re relying on.

People at different levels can introduce AI without anyone first explaining what it does and how to work with it. Then everyone tries to make something out of it as they go.

The work still needs people who understand the product, the task and the information.

Fraud, compliance and customer trust

Diana: Should FinTech companies factor fraud and compliance costs into customer acquisition and growth plans?

Katia: Yes, those costs belong in the picture too. We keep postponing important work that the company’s growth depends on.

If you know requirements are going to change, start preparing while you have time. Hire the legal and compliance specialists, build the team, speak to banks and ask what you need to have ready.

It can take months to build that team. The companies thinking over the long term are already having those conversations and preparing. When the changes arrive, they can move forward with the work in place.

And in FinTech, we’re talking about technology. Everyone is pursuing instant payments. Customers expect the money to arrive immediately.

But speed also brings risk. The payments company or bank takes that risk: you can end up sending the money first and trying to understand where it went afterwards.

The checks need to happen before the payment goes through. At the same time, customers aren’t expecting to wait a day or 2 for those checks.

So the company needs technology that can check quickly and help reduce the risk. That also affects trust in the service.

Diana: How do those checks affect the customer’s experience?

Katia: You’re looking at behaviour and at what happens across the customer’s payments. There are many transactions to monitor, and the system has to notice the things that need attention.

Imagine someone has been paying in Spain all day, and then a payment appears in the Netherlands. That is something the system needs to notice.

Or you see a series of small attempted charges — €1, €2, €5. The system needs to identify the pattern, raise an alert and take action to protect the card.

But it also has to avoid harming the customer through its response.

For example, a business may have a card connected to advertising accounts, with payments going out regularly. There may be reasons for the activity you’re seeing.

You don’t want to block the customer’s account in the middle of their business activity because the system has misunderstood what is happening.

There are many different situations to account for. It takes a whole infrastructure to handle them.

Diana: Who does the customer hold responsible when a payment goes wrong?

Katia: The payments company whose service they’re using.

You may have a banking partner behind the product, but this is your customer. You’re the company serving them. Once you’ve taken on that customer relationship, these problems become part of your work.

When someone enters their details into a payment form, they don’t see which bank you have behind the scenes. They see the payment provider. The questions come to you.

Imagine someone going online to buy a pair of boots. They see your payment option, PayPal and perhaps another provider. If they had a problem with your service before, next time they may decide: I’d rather choose PayPal.

That’s where the competition becomes very direct. The customer remembers the experience they had with your service.