Persistent Fraud Has Smart Businesses Switching From Playing Defense to Offense

Fraud is unavoidable, and scams affecting today’s businesses only getting smarter and more sophisticated.

With modern advances come corresponding vulnerabilities, and in the challenging macroclimate of today where every dollar counts, it is becoming more critical than ever for businesses to go on the offensive when defending their organizational walls against the next generation of bad actors and their increasingly nuanced attacks.

This, as the White House steps up its own investments in fraud protection tools to the tune of $1.6 billion citing“past underinvestment in basic technology,” and the Federal Trade Commission (FTC) reveals that U.S. consumers alone lost $8.8 billion last year to various fraudulent schemes.

As payments get faster and digital-first solution usage increases, enterprises large and small will need to confront internal inefficiencies in accounts receivables (AR) and accounts payables (AP) processes.

“[Fraud protection] benefits the merchant by increasing profitability and reducing fraud rates and operational costs, and it benefits the customer who gets authenticated and not rejected because they’re wrongly perceived to be a risk,” Shimon Steinmetz, CFO at automated risk assessment and fraud prevention solution Vesta, told PYMNTS earlier this week (March 1).

New research in PYMNTS’ 2023 “B2B Payments Fraud Tracker” finds that more than 7 in 10 businesses report needing additional digital fraud solutions in order to remain hypervigilant as fraudsters and scammers increasingly search organizational perimeters for cracks and weaknesses.

Read more: Online Scam Complexity Is Paradoxically Keeping Banks’ Fraud Controls Offline

Digital Channels Offer a Ripe Opportunity for Bad Actors

Thursday’s (March 2) public release by the Biden Administration underscored that the pandemic “exposed significant vulnerabilities” in federal government systems, emphasizing that “reliance on historic knowledge-based verification is more and more susceptible to attacks given the widespread ease of access by criminal syndicates to individuals’ personal information.”

PYMNTS has previously covered how leaders in the private sector are themselves increasingly taking aim at “technical debt” as they modernize their own operations.

Digital payments are at the heart of many financial institutions’ innovation efforts, but the rise of digital-first payments also present a challenge to organizations still struggling to find the right risk management solution as ongoing data breaches and social engineering scams become more sophisticated.

The White House has earmarked hundreds of millions of dollars to “support the modernization” of its verification and anti-fraud systems and better protect the American populace.

Findings in the PYMNTS report, “The State Of Fraud and Financial Crime In The U.S.,” show that savvy businesses are doing the same with their own internal systems.

Large financial institutions (FIs) with over $5 billion in assets collectively bore nearly $120 million in average fraud costs for 2022.

Per the report, digital payments misuse accounted for 21% of the total number of fraudulent transactions, while fraud resulting from relationship, product and service scams together represented 22%.

Gerhard Oosthuizen, chief technology officer of Entersekt, told PYMNTS in an interview posted Tuesday (Feb. 28) that “2023 is shaping up to be an interesting year, as businesses are now able to take stock of what tasks and which system investments are needed to accelerate success within tomorrow’s increasingly online and digital environment.”

See also: Interest in Advanced Digital ID Growing to Address Convenience, Safety Concerns

Verifying Digital Identity Crucial for Future KYB and KYC Controls

Companies that remove identity verification friction stand to gain revenue relative to peers, yet a PYMNTS report, the “New B2B Authentication Standard,” found that nearly half of companies (49%) view verifying the identities of new business customers as a significant challenge needing to be addressed.

The report noted 50% of companies that implement automated solutions for digital identity verification are happy they did so.

In today’s environment, companies should use technology that allows them to ensure payment details are verified during onboarding and whenever there are requests to update banking information to certify that sensitive information being shared is both protected and legitimate.

“There’s a beautiful upside that can reduce cost and drive much better customer experience,” Entersekt’s Oosthuizen told PYMNTS in reference to today’s modern fraud-fighting tools. “Unfortunately, there is also a darker side. People are already using ChatGPT and generative AI to write phishing emails, to create fake personas and synthetic IDs.”

As digital identity moves beyond “just tick-the-boxes” technology to become an increasingly critical security pillar, it’s important for businesses to continue investing in the proper protocols and controls to support emergent authentication gateways like password-less solutions and biometric security features.