Banks Deploy Cryptographic Fingerprints to Combat Duplicate Trade Financing Fraud

When Surecomp announced Tuesday (April 12) a solution to mitigate the risk of duplicate trade financing fraud, the company tackled a type of fraud that had been next to impossible to prevent — and that has led some banks to abandon the trade finance business altogether.

In duplicate trade financing fraud, a bad actor asks two banks to finance the same invoice, taking advantage of data protection regulations that keep both banks in the dark.

Read more: Surecomp Debuts Duplicate Financing Fraud Protection

“The risk cost of lending money in this business has risen dramatically, to the extent that some banks have exited this business completely,” Surecomp President and CEO Guy Perry told PYMNTS.

Combating a Rising Type of Fraud

More and more fraudsters have been exploiting the weakness the tune of millions of dollars because there hasn’t been a solution available to banks before.

“Hence, it’s an open door that everyone knows about,” Perry said.

It’s a problem that has dampened banks’ enthusiasm to offer trade financing so much that it has threatened to widen an already worrying trade finance gap — the demand of corporates for trade finance that is not met or served by banks. And small- to medium-sized businesses (SMBs) will be the first hurt.

“If the cost of doing business rises, then typically the micro and [SMB] businesses are hit first, as they have the weakest negotiating power and the worst or nonexistent credit rating,” Perry said.

Comparing Invoices While Protecting Customer Data

Surecomp’s solution allows banks to share a cryptographic fingerprint of invoices and other documents that are financed.

“With this solution, banks can protect their customer data at any time and will never share the customer data with anyone outside the bank,” Perry said.

Instead, Perry explained, a cryptographic fingerprint is generated, and only this is shared with a database run by Surecomp. If the same fingerprint is found in the database, then both banks will be informed.

“This effectively prevents paying out money twice for the same invoice,” Perry said.

Watching for Green, Red or Amber

This solution should be implemented by banks that are active in providing finance for trade business — financing invoices, purchase orders, warehouse receipts, bills of lading and so on — Perry said.

Putting the solution in place requires installing a small local app that will generate the cryptographic fingerprints. In Surecomp’s basic subscription plan, this solution comes at no cost to the banks.

For each bank using the solution, the only process change is to look at the result of the fingerprint check. If anything suspicious is found, the solution enables the two banks to have a secure communication channel.

“If it’s green, the bank can continue with their standard credit process,” Perry said. “If it’s red, they should stop. In case it’s amber, a more thorough check should be performed.”