CareCredit - Women's Health April 2024

Buy Side, Supply Side: Winning the B2B Payments Fraud War

Fraud is a costly and common problem in payments.

In B2B payments, both of those elements are scaled up to a degree that is impossible to ignore. To a bad actor, the big-ticket transactions that power global commerce are an attractive target.

The B2B landscape is responsible for around $125 trillion of annual money movement, and much of that money is moved in ways that rely on legacy methods and inefficient processes. This leaves the payment vulnerable to attack and puts the lifetime value of existing commercial relationships between buyer and seller at risk.

Still, observers believe that fraud in the B2B space is more of a business problem than a technical one. Modern solutions that solve for historic headaches and smooth over security gaps already exist and are implementable.

Many firms are simply happy enough with the way things work and content enough with their existing B2B relationships and monolithic systems that rocking the boat with an investment into process modernization — wrongly or rightly — appears to be riskier to them than the threat of B2B payments fraud.

But the landscape is changing. New payment methods and modalities are transforming both sides of the B2B transaction, and startup firms are winning business from incumbents by turning their accounts payable and accounts receivable functions into competitive advantages.

That’s why, for the PYMNTS Series “Buy Side, Supply Side,” we are unpacking the importance of security and trust from both the buyer side and the supplier side, as well as how secure payment methods and authentication mechanisms help prevent disputes and discrepancies in financial transactions, ultimately leading to more sustainable, longer-term relationships.

Read also: Invoice Verification Slows Pace of Real-Time Business Payments Fraud

B2B Fraud Is Becoming Harder to Detect and Easier to Execute

When B2B payments took months or days to process, companies had more time to verify the authenticity of invoices and possibly claw back funds sent accidentally to fraudsters. However, in today’s fast-moving modern landscape, robust security is now a must. Businesses must have the right fraud detection solutions in place before processing a transaction.

B2B payments are transitioning to an “everything, and” environment, where firms need to uphold everything that’s already being done in the anti-fraud space, while at the same time employing additive measures like instant verification to ensure the security of payments.

“It’s a continuous spectrum,” Michael Jabbara, global head of fraud services at Visa, told PYMNTS in March. “[Businesses need to] think about every interaction across multiple dimensions and think strategically about the appropriate safeguards to put in place to reduce potential incidents of fraud.”

Within this modern ecosystem, the manual nature of paper checks introduces a higher risk of errors and avenues for fraud that can damage relationships with vendors and suppliers.

Paper checks are inherently and ironically very risky vehicles,” Ben Weiner, senior vice president and global head of B2B payments at Nuvei, told PYMNTS in November. “It’s about converting those types of payments into more secure forms like virtual cards while limiting the risk of manual error or fraud every time a payment is touched by a human.”

Not only that, but paper checks are susceptible to forgery and alteration. Fraudsters can intercept, alter or create counterfeit checks, leading to financial losses for both buyers and suppliers. Additionally, tracking paper check transactions can be challenging, making it difficult to trace payments, which is needed for auditing and dispute resolution.

“[Legacy processes are] candidly way more susceptible to fraud” than electronic AP solutions, Ernest Rolfson, CEO and founder of Finexio, told PYMNTS in June. Still, even Rolfson said that “checks are going to continue to die the slowest death.”

See also: Attack Vectors 2024: Identity Theft and Digital Banking

Modern Problems Require Modern Solutions

Today’s most secure B2B payment methods often come with real-time reporting features, allowing both buyers and suppliers to monitor transactions and identify discrepancies promptly.

Digital transactions leave comprehensive audit trails, making it easier to trace the flow of funds and investigate any discrepancies or disputes. In general, buyers need to safeguard sensitive financial information, such as bank account details and transaction records. Implementing robust data protection measures, including encryption and secure storage, is essential.

For their part, suppliers want protection against fraudulent activities, including identity theft and payment fraud. Authentication mechanisms ensure that the payer is legitimate.

Collaboration and data sharing between businesses, financial institutions and cybersecurity experts is crucial in developing and implementing effective preventive strategies. Additionally, the integration of advanced technologies such as artificial intelligence and machine learning can enhance the detection of suspicious activities and potential threats.

When it comes to B2B payments fraud, it’s not a matter of if it happens, but when. Businesses on both sides of the transaction need to ensure that their defenses are ready, not rusty.

For all PYMNTS B2B coverage, subscribe to the daily B2B Newsletter.