Onboarding Is the New Fraud Firewall

Fraud losses and payment failures are getting harder to recover after settlement and middle market firms are responding by moving verification and identity checks earlier in the customer relationship — turning onboarding into a core financial control point rather than a compliance step.

The reason is straightforward. According to “Early Detection: Why Top-Performing Firms Focus on Fraud Before It Starts,” a PYMNTS Intelligence and Plaid report based on a survey of 60 payments executives at U.S. middle market companies, most firms are still catching fraud too late. Fifty-seven percent said they typically detect fraud or nonclearance only after settlement — when the financial damage, across accounts receivable, is often already done.

As a result, firms are shifting verification earlier into onboarding and payment authorization workflows instead of relying primarily on downstream recovery processes.

The report found that companies using instant or real-time bank account verification overwhelmingly reported stronger fraud reduction and payment integrity outcomes. Eighty-four percent of firms that recently adopted instant bank account verification described it as highly or extremely effective.

Identity verification at onboarding produced similarly strong results. Seventy-eight percent of firms that upgraded onboarding verification processes said those efforts were highly effective at reducing fraud risk or improving payment integrity.

The broader implication is that onboarding is no longer functioning solely as a customer acquisition or compliance process. It is becoming part of how firms protect revenue quality before transactions begin.

That marks a shift for middle market finance teams.

Historically, many AR departments treated fraud and payment integrity issues as downstream exceptions to resolve after settlement. Manual document reviews, customer callbacks and post-transaction investigations dominated workflows.

But AI-driven fraud schemes and faster payment rails are eroding the effectiveness of that reactive model.

The report noted that firms detecting fraud earlier in the payment cycle were roughly twice as likely to use bank account ownership verification tools as firms relying on post-settlement detection. Early detectors also deployed more verification methods overall, averaging eight separate controls compared with six among firms detecting issues later.

Verification Moves Closer to Revenue Generation

Middle market firms with higher operational uncertainty reported fraud and nonclearance costs equal to 42 basis points of annual revenue, double the level reported by low-uncertainty firms.

The report also found that integration challenges carry financial consequences. Firms whose payment verification and fraud systems were poorly integrated into AR workflows reported fraud-related costs of roughly 40 basis points of annual revenue, compared with 30 to 35 basis points for peers with better integration.

Those findings suggest the cost of weak onboarding controls now extends well beyond fraud losses themselves.

Delayed verification can create downstream operational friction across collections, customer service disputes, returns management and cash flow forecasting. Faster payment environments amplify those pressures because businesses have less time to intervene once funds move.

Instead of viewing identity verification and bank account authentication primarily as compliance functions, firms appear to be treating them as infrastructure tied directly to receivables quality and revenue predictability.

The report suggests the firms performing best are not necessarily slowing transactions down. Rather, they are moving fraud and identity checks earlier enough in the customer life cycle to reduce uncertainty before settlement occurs. That distinction could become more important as middle market firms continue balancing faster payments, automation and growing fraud exposure simultaneously.

At PYMNTS Intelligence, we work with businesses to uncover insights that fuel intelligent, data-driven discussions on changing customer expectations, a more connected economy and the strategic shifts necessary to achieve outcomes. With rigorous research methodologies and unwavering commitment to objective quality, we offer trusted data to grow your business. As our partner, you’ll have access to our diverse team of PhDs, researchers, data analysts, number crunchers, subject matter veterans and editorial experts.