At SentiLink, we pride ourselves on our deep understanding of fraud, and to be the first team that our partners think of when they run into their most challenging risk and fraud problems. Over time, we realized that the most impactful questions we get from entrepreneurs and operators aren’t the tactical questions on how to stop specific fraud rings, but the strategic questions they wrestle with as they build their companies from 5 employees to 100 employees.
As a team of former Risk analysts and managers from high-growth Fintech companies, we know that Risk teams are integral to building the next generation of consumer and SMB financial services. Our goal in this post is to help tackle the first question by sharing positive scaling patterns that we’ve seen in the past.
Risk management in lending, payments, and banking is not a new concept - financial institutions in the U.S. employ thousands of fraud investigators, data scientists, and analysts to help them control losses, meet their regulatory obligations, and launch new products. The mindset within these types of scaled organizations and sub-teams is often oriented around 1. Operational Efficiency, 2. Pure Loss Prevention, or 3. Compliance. All are valid goals for certain teams, in a scaled organization.
However, the ability to underwrite a consumer or small business for a loan in a new type of lending product, acquire customers for a new digital banking concept, or accept payments for merchants in a new way, requires early-stage Risk teams to adopt a more innovative mindset, as they need to balance all of these goals at once.
The most successful early-stage Fintech companies we’ve seen tend to view Risk as an “R&D” function with direct influence and ownership on the product, not on operations, compliance, or supporting function to solely stop fraud.
We’ve observed that the best early-stage risk teams tend to focus on:
When growth is all that matters in an early-stage Fintech digital bank or lender, it’s common and appropriate for CEOs to spend the bulk of their time focused on customer acquisition strategies and growing distribution. We’ve observed that the best Fintech Risk teams tend to have ownership over key elements of the product and customer experience to help support this growth.
Lagging indicators that there may be a scaling problem in this area:
Each time a loan is not paid, a chargeback for fraud is filed, or a bad user gets on the platform and abuses the product in an unforeseen way, can be stressful.
Best-in-class Fintech teams tend to view loss events as an opportunity to learn and an experimental data point, and here’s some of the positive scaling behaviors we’ve seen:
Lagging indicators that there is a problem in this area:
If you found this post interesting and want to take a deeper dive into the topic of risk at high growth startups, some of our favorite content includes:
Over the next several months, SentiLink will be publishing a series of articles and webinars on the craftwork of Risk in high growth startups: best practices, organizational design and hiring, benchmarks, and insights we’ve seen from the most successful Risk teams in Fintech.
This content is designed to be a helpful guide for early stage Fintech entrepreneurs and operators as they scale their startups to their first 100 employees. We would love to hear if there are specific topics you’d like us to cover.
Vivek Ahuja’s background in Risk at high-growth Fintech companies includes risk product management at Marqeta, credit and fraud risk management as Affirm’s head of Merchant Risk, and as the co-founder leading anti-fraud efforts at Xendit.