The Bitcoin Swindlers
By Nicole Casperson
The Bitcoin Swindlers
TL;DR: By now, I imagine you’ve heard of two viral happenings this week:
- The Netflix documentary on the Tinder Swindler (aka the phony rich kid that defrauded women he met on Tinder).
- The DOJ arrested Ilya Lichtenstein and Heather Morgan (aka Razzlekhan) for allegedly conspiring to launder $4.5B in stolen cryptocurrency.
Both stories coming at us this week got me feeling like now is a good time to talk about stats & solutions to the fraud problem that fintech faces (with my spicy spin). Let’s dive in.
Fraud isn’t often talked about because it’s not fun and sexy. As a journalist, I’ve been covering fraud in finance across different sectors from auto loan fraud to ransomware threats. Like it or not, it’s something we need to talk about regularly.
Especially in today’s world when every company has become dependent on a vast and expanding digital infrastructure. Some data points to take note of:
- Losses due to identity fraud and fraudulent account takeovers in fintech = $17 billion and there were 16 million victims of identity fraud in the United States.
- Fraud is costing businesses and individuals globally ~$5 trillion each year.
- Online payment fraud losses are expected to hit $206 billion by 2025.
- In the case of our latest Bitcoin fraudsters (they literally got arrested Tuesday)authorities said they recovered $3.6B of the total stolen cryptocurrency, marking the largest financial seizure in federal law enforcement history.
The numbers are scary, and they should be.
‘I Got a Fake ID tho’
The most common thread I see in fraud starts with synthetic identity. Let’s take PayPal for example. Earlier this month, PayPal admitted it had found 4.5M accounts that were illegitimately created.
While we’re not sure how PayPal’s scam was created, it’s likely through synthetic account fraud (when criminals create fictitious accounts by combining real and fake ID credentials). This method was also used by Razzlekhan and the Tinder Swindler.
The many faces of synthetic account fraud can mean:
- The user may not be who they claim they are.
- The user may have taken over the account of a real user.
- The user may be using a stolen card, ID, or bank account.
These problems do create a boom for the global digital identity solution market, which is expected to reach a value of ~ $50B by 2026, according to Markets and Markets.
Here’s a list of other types of fraud the fintech industry needs to beware of this year from first-party fraud to BNPL.
Don’t Blame it on Bitcoin
Bitcoin is used for bad things, but so is fiat currency, diamonds, gold, and oil. We’ve had crime in financial markets for as long as we’ve had financial markets. For example, the first time insider trading happened was under Alexander Hamilton, the first U.S. Treasury secretary.
Fraud isn’t an asset class problem, it’s an operations problem that should be top of mind for every person a part of your firm—from the CEO to the most recent hire.
Focusing on the asset class is missing the point. Instead, it’s on fintech leaders to ensure they’re beefing up fraud prevention (while maintaining a smooth UX). This can be done through platforms like:
- Sardine, which a16z announced it just invested in the platform that provides ACH & card settlement to fintech and crypto companies enabling them to stop payment fraud and increase conversion rates.
- Plaid recently acquired Cognito, an identity verification startup. The acquisition is meant to help Plaid build better products for ID verification and security processes throughout the fintech ecosystem.
So much fraud talk. Need a laugh? Feel free to check out this TikTok of Razzlekhan.
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Financial Mindset of Black Americans
TL;DR: Fintech companies have a massive opportunity to expand access to wealth building for Black Americans. Through technology and automation, fintech companies can reduce costs and prices, speed up delivery and increase convenience for underserved populations.
To offer solutions, it’s important to understand what this community needs. The team at insurance tech provider Bestow recently surveyed more than 500 Black Americans to understand their financial mindset as the pandemic recedes.
The pandemic changed how we all see our financial futures, but also shed light on racial disparities. Data gathered early in the pandemic showed that communities of color were hit way harder with financial losses and deaths.
A higher rate of deaths within the Black community meant many were financially under-resourced for a death in the family. According to Bestow’s survey:
- 30% of respondents said they would go into debt with a funeral home payment plan or credit card debt, while another third (30%) would rely on community funding support through friends, church, or a service like GoFundMe.
- Only 19% would be able to pay with cash on hand for a funeral, which is estimated to be $7,848.
- 33.6% of Black Americans recognize that their family would be financially unable to maintain their quality of life if they died.
Now, 72% of Black Americans are looking to change the way they approach financial planning.
Why it Matters
Among the systemic inequities many Black Americans face, one of the most concerning is the lack of access to necessary financial products and services.
This is especially dire among a population that the financial services industry has historically underserved. For example, nearly half of the Black population is not banked due to exclusionary products and services.
While this problem is acknowledged, there are still misconceptions about its causes and its effects on families making it difficult for fintechs and financial services to meet the challenge.
Fintech Can Mitigate Racial Wealth Gaps
Over the past 20 years, fintech companies have provided new ways to capture data, reach broader audiences, and expand access to credit. Fintech companies also have the potential to think differently about policies and programming that can amplify opportunities for Black and minority communities.
Brookings Metro Fellow Kristen Broady expertly outlines several strategic ways private-sector innovations can be paired with public policy interventions to address some of the systemic issues that have contributed to the financial health and wealth gaps including:
- Hire more people of color and institute employee financial wellness initiatives like providing equity to all employees and raising wages.
- Meet people where they are in their communities, working more intentionally with local leaders, MDIs (Minority Depository Institutions), and CDFIs (Community Financial Depository Institutions).
Dr. Broady points to fintech MoCaFi (Mobility Capital Finance Inc.) a digital banking platform with an objective to empower Black households and businesses through community collaboration, as a great example of a fintech making a difference.
Meet the CEO of the ‘Spotify for Stocks’ App
TL;DR: Brittany Wright was consistently asked to share her investing strategies and portfolios with her family, friends, and social media community. In fact, she was asked enough times where she thought: “Shouldn’t I get paid for this?”
So last year she founded Endex, an investing app she calls “Spotify for Stocks” for everyone to monetize sharing their investment portfolio for others to copy.
What Makes it Unique
Endex is a social investment platform that facilitates the creation, publication, and investment in custom index-like portfolios. Endex allows retail investors to connect on the topic of investing and provides a place where beginners can learn and find new investment strategies to emulate.
There’s competition out there when it comes to social investing apps—from Public to eToro—but one thing that is different about Endex is it enables the investors, creators, or influencers on the app to monetize their content.
Think of it like this: Public has a tipping feature to make money for the platform. Endex has a feature to pay the creator whose portfolio you copied.
Also, Endex is broker-agnostic, so it can work with a lot of different brokerages and people whether they have brokerage accounts at TD Ameritrade or Robinhood.
“With custom indexes, not only can it allow these influencers and creators to add value to their followers by providing them something that they can actually copy in their investment accounts, but also provides an additional layer of transparency for the followers who can track performance.
That’s why we describe ourselves as the Spotify for stocks because we allow people to create playlists for investing. It’s like the midway between active and passive investing.”
Endex is currently in the approval process with the app stores from Google and Apple as it gears up to launch in private beta. Endex currently has 500 people on their waitlist (which opened in September).
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- Robinhood’s path to go global is likely through crypto
- Rise People partners with Wealthsimple to simplify tax season for Canadians