Why Most FinTech Referral Programs Fail and How to Handle the Problem of Bounty Hunters?

Published by Yana on

FinTech and Crypto startups constantly think of user acquisition which is why they frequently offer referral programs or run marketing campaigns rewarding new users who just sign up. Unfortunately, the majority of these referral or reward programs are poorly structured and end up attracting 1% of the genuine customers interested in using your platform and 99% of the bounty-hunters who find creative ways how to manipulate the system, create fake accounts, get their rewards and run away or remain inactive.

Not only this is a waste of resources because you spend time and money running ads and distributing rewards to new users who will never transact but you also have a compliance problem because you have just created new accounts and allocated some funds there, but those accounts are mostly fake, created with non-existing emails or within a circle of friends and family referring each other 20 times, they will never complete your KYC process, so, in essence, you have lots of new accounts with small balances created under false and borderline fraudulent pretenses. I don’t think this is really fraud because you yourself created this loophole and the users are just opportunistic.

So – how to structure your rewards or referral program better? 🤔

  • Don’t allocate rewards upfront. Introduce the process where new users must register and pass your minimum KYC, only then grand them their rewards.
  • It’s a bad idea to grant rewards upfront but not make them withdrawable until successful KYC completion because in this case your account is created, the balance is there, but the user disappears or never attempts to complete the KYC. In this case, you will end up with a lot of locked accounts and locked balances.
  • Make your T&Cs for this rewards program super strict so that if the user is not genuine, you have a possibility to take the rewards back and kick them out.
  • For example, your T&Cs could include a statement as follows: 

The purpose of this program is to attract new customers and reward those customers who genuinely intend to become active customers and use our services. Therefore if we detect certain behavior indicating that an individual is using this referral program for the sole purpose of collecting rewards without genuine intention to use our service, we may disqualify your eligibility for the program. For example, customers with the following indications may be disqualified (the list is not exhaustive): opening more than one account for the same user, using an email address unable to receive emails, creating an account using false information, and other behaviors that are in violation of our Terms of Service.

Now you will see why chasing vanity metrics (such as the total number of signups) is a broken strategy and will be able to structure your reward programs in a meaningful way.

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