Faster payments are opening companies up to fraud risk - how to mitigate the threats

Why is the redundancy landscape leading to greater risks for organisations?

Companies worldwide are facing a new landscape of payment fraud risks – and these threats come with a $20 billion annual price tag.

Growing adoption of ACH, instant payments and other digital payment methods is increasing companies’ exposure to fraud events. In fact, 66% of businesses say they are likely to use faster payments more often in the future.

Fraudsters are also becoming more sophisticated in how they usurp the identity of suppliers, which makes the manual controls and processes that companies have historically relied on to prevent payment fraud obsolete.

Ninety per cent of financial departments still rely on manual bank account validation processes. Seventy percent of companies use phone calls to check supplier credential changes.

”Companies’ approaches to fighting fraud also need to evolve and advance to keep up with the pace of digitalisation and fraudsters’ growing sophistication.”

Even still, over half of successful fraud attempts are perpetrated through credential or information changes on legitimate payments. Manual processes make it easy for breakdowns to occur and for fraudsters to pose as suppliers and collect their payments.

Companies need to be 100% sure they are paying the right vendor and bank account every single time they make a payment.

As the fraud landscape changes, companies’ approaches to fighting fraud also need to evolve and advance to keep up with the pace of digitalisation and fraudsters’ growing sophistication.

What does this mean for risk managers? What are the consequences of ignoring this?

Fifty-six percent of U.S. companies were targets of B2B payment fraud in 2022. It’s not a matter of ‘if’ a company will experience fraud, but ‘when’ – which means vendor payment fraud risks and better prevention strategies need to be top of mind for risk managers and finance, treasury and accounts payable (AP) departments.

The impact of falling victim to payment fraud is substantial. While instant and digital payments bring convenience and enable organisations to get their money faster, these payment methods also make it so that organisations don’t have time on their side to stop payments or get their money back in the event of payment fraud.

Beyond the risk of lost funds, payment fraud events also hurt supplier relationships (cited by 39% of organisations), bring reputational risks (34%), raise compliance and regulatory issues (17%), and more.

”Preventing payment fraud requires regularly and actively screening and cleaning vendor data”

The risk of payment fraud often stems from bad vendor data. 

Third-party vendor data is not always accurate or up-to-date. It is estimated that 30% of existing vendor data in financial systems is outdated, whether because a vendor decides to work with a new bank, is acquired by another organisation, or another reason.

Those changes don’t always get captured in organisations’ vendor databases.

Preventing payment fraud requires regularly and actively screening and cleaning vendor data, making sure it’s up to date, and then validating the account at the time of payment so you are confident you’re paying the right vendor every time.

When you combine bad vendor data with manual control processes, it cracks the door wide open for fraudsters to attack.

What can companies and risk managers do to mitigate, manage or transfer the threat?

Most defrauded companies were confident in their internal processes before they fell victim to payment fraud.

The biggest step risk managers can take is to seriously re-evaluate controls and processes to make sure they will keep the organisation protected in today’s growing fraud risk landscape.

Consider leveraging technology and automation to instil trust in your data and processes and prevent payment fraud.

Technology is an invaluable tool for cleaning vendor data, continuously monitoring the data for changes and anomalies, validating bank accounts and ensuring that every payment is sent to the right bank account and vendor every time the company issues a payment.

”Risk managers must sponsor the implementation of technological solutions to manage vendor data properly and avoid fraud risks”

Technology can help companies do this at scale, which is important considering a single company can have thousands of local and international vendors.

Risk managers must sponsor the implementation of technological solutions to manage vendor data properly and avoid fraud risks.

It’s also important for the risk management, finance, treasury, and AP teams to collaborate, break down silos and build trust between these departments.

Get on the same page about the governance and shared responsibility for fighting payment fraud.