• Kyrillos Akritides, Co-Founder and Managing Director at Schwarzwald Capital


• 03.10.2024 11:15 am
#FraudPrevention #Fintech

In recent years, we have witnessed the growth of the creator economy. Why has it become so developed? The thing is that influencers and content creators continue to reshape the way we interact with media and, therefore, drive the growth of the market. By 2023, the creator economy was already valued at $250 billion, and by 2027, this figure is expected to almost jump to half a trillion dollars. 

But this kind of money doesn’t come without problems, and fraud has emerged as one of major threats to this space. The creator economy, like any developing industry, is in the phase of proving itself and giving the time and confidence to the rest to adjust accordingly, including policy makers. This transitional state makes the industry vulnerable to exploitation by bad actors.

To protect creators and their money in a growing industry, the need for anti-fraud solutions will increase. But the current systems are ill-equipped to handle the challenge. This is where fintech needs to step in. Let’s discuss it in more detail in this article. 

What Makes the Creator Economy So Vulnerable to Fraud?

Strictly speaking, fraud is a threat that’s present in just about any industry, but some are particularly vulnerable to it. The creator economy is still a relatively young space trying to find its feet. Regulations are a lot more vague (if any), and the systems currently in place are not yet optimized to handle fraud efficiently.

This lack of regulation means many cracks for criminals to slip through. The fact that the creator economy attracts millions of young and inexperienced people, the large number of small transactions, constitutes the perfect recipe for attracting professional fraudsters. 

Although existing anti-fraud solutions are not perfect, they do offer some level of protection. However, quite often those are not used at all because creators might not be aware, or don’t want to bear the cost of the service and potentially don’t even realize the damage that can be caused. As a result, smaller payments often fly under the radar as they may seem insignificant if considered independently. But they add up quickly, resulting in considerable sums and creating a fertile ground for fraudulent activities.

Current Solutions Are Falling Short: Stepping Up the Anti-Fraud Game

As I mentioned earlier, the sheer volume of microtransactions creates a challenge for fraud detection systems. And the great variety of platforms and monetization tools in this sector also doesn’t help. Many creators use different methods to generate their income, which makes it harder to apply fraud prevention measures consistently.

As a result, traditional protection strategies designed for conventional industries often don’t work in the creator economy. The tools that banks and fintech companies currently rely on aren’t built to monitor the type of monetization that happens on social media and content platforms.

Furthermore, fraudsters in this space communicate and share information quickly, which means their tactics can evolve faster than the systems trying to catch them. This results in a cat-and-mouse game where fraud prevention is constantly forced to play catch-up.

To handle these challenges, new anti-fraud solutions or existing ones adjusted specifically for this sector are needed. Collaboration with major industry players will also play a crucial part in this process. These companies possess a wealth of data — information about stolen cards, for example — that can be used to develop better fraud detection measures.

At the same time, by studying the transaction patterns common to the creator economy, fintech companies can design more refined detection methods that will be able to catch fraud in real-time and keep creators safe, without affecting the user experience.

Financial Institutions Are Slow to Act So Far

You might ask, then — why hasn’t the financial sector already tackled this issue? The answer is actually quite simple: it’s because many financial institutions don’t see the creator economy as a stable, legitimate business. Creators are often viewed as high-risk clients because the industry is often associated with other high risk industries, revenue streams could be aggregated from various payments methods that the banks are not aware of and as a result cannot rely upon and in general banks tend to be skeptical about anything they are not very familiar with, therefore tend to under-serve this sector.

This, however, creates a very problematic loop. Without reliable access to quality financial services, creators often struggle to stabilize and grow their income. This, in turn, makes them more vulnerable to fraud and less appealing to banks. To break out from this circle, the creator economy should become more “reliable” in mindset from the financial sector.

Fintech companies, in particular, should see this as an opportunity. They should step in and support the creators. As a consequence, they can gain access to vast amounts of data generated by thousands of daily transactions all over the world. This data can be of great use in refining analytics and improving fraud detection across the board.

Final Thoughts

The creator economy has a bright future in the upcoming years. I do believe that with proper support from fintechs, it can flourish into something truly impressive. Financial institutions can become an integrated part of it by helping the creator economy solve fraud issues.

The more fintech companies become involved in the creator economy, the cheaper and more accessible anti-fraud solutions will appear. This will build trust in the creator economy, add transparency so necessary especially for regulated market participants, and make the industry safer for every party involved.