What should transport startups do when they encounter fraud?

I was delighted to sit down with Terry Runham to discuss how businesses who hit scale should react when they encounter fraud. Terry is a founder of Hailo (from which he moved on to insuretech at IOMA).

While at Hailo, he was at the sharp end when the company gained serious traction around 2012 and when with that traction came some serious issues with regards to payment fraud.

We talked about how the company grew so fast and what the initial indicators were that there was a problem. Not untypically the supplier network was the first to notice and swiftly the chargebacks followed as the bogus fares started to show up on people's bank accounts.

Terry had some great insight into how to stop the bleeding through manual intervention and quickly building ways to decline or stop bogus transactions.

Terry also shared the importance of understanding first-hand how and why fraud is impacting your business. But he is equally adamant that the real solution is to invest both in the people and in the systems to stem the fraud tide properly and the folly of pricing in fraud in the medium to long term.

What should startups in transport and travel do when they encounter fraud? – episode transcript

Gerry: Hello everyone, and welcome back to the Ravelin Fraud Academy Podcast. Growing a successful business is hard. When you're focused on adding customers as fast as possible, what happens when you're hit with fraud?

In this episode, we talk to someone who has been through that exact experience. Terry Runham, one of the founders of Hailo, the taxi app that revolutionized the ride-hailing business, discusses how fraud impacted the business and the steps they took to counter it.

Welcome Terry, to the Ravelin Fraud podcast.

Terry: Thank you Gerry, good to see you.

Gerry: Terry, you were one of the founders of Hailo, of course, and, while we're not a startup podcast, I think it might be interesting to look back at the early days of, of where Hailo started from and how quickly it grew and what that growth looked like. Give us some background there.

Terry: Yeah, sure. So, it really started for me and the other founders back in 2009 when we came up with an idea of a website where passengers and drivers could connect and decide what price they wanted to pay. From there it grew in driver base through to 2010 until we were contacted by Ron J and Casper. From there we spent a lot of time together discussing the taxi industry...

Gerry: So Ron J and Casper...

Terry: Ron J and Casper were the other three founders on the business side along with myself Gary and Russell. Gary Jackson and Russell Hall. We just hit it off really well and from there we got a room on a boat, the HMS President, on the Thames, and it was probably about just as big as this room here.

Gerry: Yeah.

Terry: We started building the app and really designing what we wanted from the driver's point of view and from a passenger's point of view. And it grew really quickly, yeah, once the funding came in and the tech guys started coming on board, we soon outgrew that room and and, I think within probably 6 to 8 months we, we basically took over the whole of the boat.

Gerry: Yeah, it was. How many people is that you're talking about, going from...?

Terry: It must have been from 6 up to 30 to 35 pretty damn quickly.

Gerry: In about six months. So you were going from what, like, no rides a day to...?

Terry: Yeah, so when, when we launched in November 2011, it, we had done a few, you know, a few test rides and, and we had a, what we did was we, we built a, a, a driver base. That was, that was the key, you know, we had about 6 to 800...

Gerry: These are, these are London cabbies, right?

Terry: London cabbies, yeah. 6 to 800 drivers using the app, with family and friends on the passenger side. And, um, yeah, we went pretty quickly from November 2011, maybe, it's hard to really remember really, maybe 50, 60 rides a day, up to thousands within, within months, with all the press and family and friends, spreading the, spreading the word, and, and going viral, really.

Gerry: I think I started using the service around then. It really was revolutionary at that time. I mean, it was pre-Uber, which people kind of forget, and being able to see your car, where it is, and...

Terry: Pre-Uber in London, yes. Yeah, yeah. And at, at the time when, when we launched, there was probably about six to eight other apps out there trying to do the same thing. So, it was quite a cutthroat business at the time, you know.

Gerry: But you guys, you got the the early success. I mean, you got the initial, I guess what we call now scale up, you know, from, you know, a few rides a day to, to, to many thousands. And that brings, you know, just, like, relating it back to fraud, I mean, this brings its own issues. I mean, when did you start to see fraud emerge? What were the sort of canaries in the coal mine that made you think, "Ooh, we might have a problem here"?

Terry: Yeah, I suppose it, it really came to our attention quite early, probably, early to mid-2012, when the way that we really found out about the fraud initially was drivers telling us, you know, our supply, basically letting us know that they felt that there was something not quite right about the job they was doing, and as well as the chargebacks, you know. Once they started to scale up quite a lot, then we obviously knew we had a problem.

Gerry: Yeah.

Terry: ...which needed to be dealt with.

Gerry: I mean, what did you guys do specifically to combat it initially? Was this...?

Terry: So having knowledge of being a taxi driver, we would, we would basically look at live jobs, um, as they was happening and basically using our experience and knowledge to see whether that looked, um, a bit suspect, and then taking actions by speaking to the driver, and really understanding from his point of view if he felt that there was an issue, and then dealing with it if, if there was.

Gerry: So, I mean, did you do much of that chargeback analysis? Was that part of the process, or was it more trying to get a real just manual understanding of what was happening?

Terry: I think it was more of a manual understanding from, from our point of view, because we was really at the coalface. In those early days, it was very much us, having that good relationship with the drivers, and I think that's why they came to us quite early with, with any issues, because, because what it was, because we was one of the first who really took hold of the market, they, they felt like they was part of it. So having that, that relationship and that, and that good, loyal community was, was something that was really important.

Gerry: So I think, I think we see that a lot. I mean, we see it with a lot of the people who are our clients now, where they start trying to sort of really manually understand what's going on and make some manual interventions and stop it through whatever process they can. I mean, I think it's great to get that understanding, but I mean, what advice would you give them from a sort of a systematic point of view? Okay, we, we have a problem, I think we have an understanding of what it looks like, but how do we deal with it? I mean, what advice would you give to people who are, you know, seeing this problem now and seeing it grow?

Terry: Yeah, I, I guess my advice would be, basically, if you're starting to see it, then you've got a problem. And manual intervention can only go so far. You know, as soon as you start scaling up and, and you, you, your database of users starts becoming into the, the hundreds of thousands, the tens of thousands, then you're, you're going to start seeing a lot more, a lot more suspicious activity that you, you can't really deal with manually, because it's just unscalable. I mean, you know, especially if you've got a business that's 24 hours, you can't sit in front of a computer screen looking at, you know, jobs or, or, or, um, things that are going on 24 hours a day, and, and it's just something that you, you need to deal with with a, a system change.

Gerry: So you guys, I mean, is a systems change getting, going to a vendor, or is it making a, a hire? I mean, I think at Hailo you made a specific hire to sort of deal with this problem. Was that the sort of the first step and the step you recommend, or would you, would you look at sort of, well, I'm going to go get a supplier to try and solve this problem, or...?

Terry: Um, it, it's, it's really, it's really strange because, you know, we went out and we found Martin Reeder, but although it was only 5 years ago, it seems like a lifetime away and, and 5 years ago, how many vendors were actually out there dealing with this kind of thing? On-demand fraud in the taxi industry especially, because...

Gerry: True.

Terry: ...it was, this was new, you know. So it was hard to find that external vendor to deal with it, so that's why we had to bring someone in house with, with experience in fraud, which, which was Martin. And Martin came in, implemented his processes, and, and we worked really closely with Martin and, and we, we did our best to, to stop it, um, as much as we could.

Gerry: So within Hailo at least, it sort of, I mean, the issues sort of bubbled up, I guess, to sort of board level. This was something that was discussed at the, at a senior level as something that needed to be, to be invested in and addressed. Do you think that's, I mean, it took a while, I think, for it to get there, is that correct?

Terry: It, it did take a while, yeah. I, I, I think the problem with, startups then, and, and probably some startups now, they build into their budget loss – a budget for losses, you know, for, for, for potential fraud, which is, which is ridiculous, really. I mean, why, why should you have a budget for fraud when you can try and stop it? You know.

Gerry: Did you have? Because there is, I agree – obviously from our perspective we are biased, but...

Terry: Yeah.

Gerry: ...we do see a lot of, we do see an argument, and you hear it quite regularly, that people don't care, that they're focused on top line growth, that they, you know, even if this, even they sign up 10,000 customers in a month, even if 2,000 of them are fraudulent bogus, you know, accounts, there for nefarious reasons, that's okay. Obviously it's a loaded question, but I mean, do you think that's a sustainable strategy, Terry? Or, are people going to be changing their approach?

Terry: Yeah, it's not. It's not, you know. Top lines are all well and good, but if you've got leaks, then eventually they're going to come to the surface, and you're going to have to explain them, and you know, I think you need to try and plug those holes up as soon as possible. Because at the end, it's still always going to affect your bottom line.

Gerry: Yeah.

Terry: At the end of the day. You know, doesn't matter how you try and disguise it, it's, it's always, it's always going to be affecting it.

Gerry: Yeah, I do, I do think that's, that's something that people need to have a more realistic assessment of, because it's, you know, we, we, we still hear it all the time that, you know, 'this is good, but how's it going to affect my top line growth?' And we'll go, "well, it's actually going to help your bottom line profitability, and that might be more important, even in the..." I definitely think that it's become more, well, it's definitely become more important over the last few years, mainly because, you know, I think fraudsters have become much more in the public eye, and, you know, especially with credit card fraud. You know, because it, it seems like it's so easy to, to commit it that I think people have become much more aware of it. Did you over the time, um, um, and you know, you've now left Hailo and doing something else, we'll come to it in a second, but in, in the time you were there dealing with this issue, did you see fraud evolve, become more sophisticated, change in its nature? Or was it just more people doing the same, um, you know, the same sort of blunt attacks?

Terry: I'll be honest with you. I think it was a bit of both. I mean, we, we saw a lot of network sharing, information, cards, email addresses, account details, and which, which was obviously hard to deal with ...unless, you know, until you implement those, those certain processes. Becoming more sophisticated? I guess so, yes in terms of the, the fact that they started to, to know when they could use it, you know, peak and off peak times.

Gerry: Right.

Terry: Yeah. And, you know, there was even cases where we saw cross, I don't know, cross company fraud at the same time, you know, they would be using...

Gerry: Multiple apps?

Terry: ...multiple apps at the same time with the same details.

Gerry: One last question on this topic, Terry. If you, someone came to you and asked you what's your number one piece of advice, "I've got this fraud problem, what's the number one thing I should do?" What do you think, what, what would you tell them?

Terry: Oh, my first piece of advice would be to call you, Gerry.

Gerry: Thanks. That was, that was unsolicited.

Terry: Definitely try and catch it early because, like I said, you, you may think that you've got a, a leak which is just a drip, but soon it will turn into a full blown, burst, and, and, and you're, you want to make sure you've got it under control before, before it becomes a problem. Deal with the problem before it becomes a problem.

Gerry: Great. So you've moved on from Hailo now. You're now doing something else. Do you want to tell us a little bit about...?

Terry: Yeah, so I'm now working in the insurance industry for a company called Islandmain Insurance. So, my role is to spearhead their insurtech offering and basically deal with the startup community and, and really cater to their needs cybersecurity, um, you know, all different kinds of insurance, um, but yeah. So, that's, that's going really well, and, um, things are, things are looking up, so.

Gerry: So if there are insurtech startups listening to this, they should get in touch with you, Terry, at...?

Terry: Yes, they should do, yeah, via, via you, yes. Yeah.

Gerry: Okay.

Terry: So I'll be knocking on a lot of doors, over the next few years, months.

Gerry: Thank you for your time. Thanks for joining us.

Listen to the podcast here.