Accounts Payable Payments as a Service Tracker® Series Report

Doubling of Check Fraud Last Year Makes AP Automation an Urgent Priority

July 2023

Firms are facing a surge in fraud, thanks in large part to reactive strategies and outdated AP payments processes and systems. The need for robust payments fraud prevention and more advanced automation procedures in AP systems is at an all-time high.

PYMNTS
01

Fraud is taking an astonishing toll on businesses in the digital era, with companies now more likely than not to have fallen victim to fraud.

02

Legacy payment procedures of all kinds are proving increasingly untenable for doing business.

03

The use of outdated AP systems and processes is leading to significant annual fraud losses that would otherwise be recoverable. This calls for urgent action in upgrading AP systems.

Register for Unlimited Access
Fill in the form below for free unlimited access to all our Trackers and Studies.

Thank you for registering. Please confirm your email to view all our Trackers.

    yesSubscribe to our daily newsletter, PYMNTS Today
    By completing this form, I have read and acknowledged the terms and conditions.


    Outdated and inefficient accounts payable (AP) procedures are a critical factor in exposing companies to external risk and internal fraud, leading to significant financial and reputational damage. Dated AP processes have become a breeding ground for payments-related vulnerabilities, including the real risk of so-called old-fashioned scams like check fraud as well as newer threats like digital identity-related hoaxes. Companies need to acknowledge the urgency of these issues and invest in robust and reliable digital AP payments services and solutions to safeguard their operations and bottom lines.

    Surge in Fraud Spotlights Need for Change

    Fraud is taking an astonishing toll on businesses in the digital era, with companies now more likely than not to have fallen victim to fraud.

    Payment fraud is exacting an outsized toll on businesses.

    Firms are losing huge sums annually to payment fraud, with 56% of United States businesses falling victim to bad actors in 2022. The number of different fraud types is nothing short of staggering, and the total losses are likely incalculable.

    56%

    of U.S. businesses fell victim to fraud in 2022.

    Invoice fraud alone costs middle-market companies an average of $280,000 per year. This amount includes not just the dollars stolen but also the cost of missed business opportunities with buyer-supplier partners as well as the costs of investing in new fraud-fighting technology. All told, each dollar lost to business-to-business (B2B) fraud costs companies an average of $4 in lost revenue.

    Even at large firms, the persistence of outdated systems exposes companies to high levels of fraud.

    Many companies have neglected to upgrade and safeguard their payment processes and systems, even those with ample resources to do so, placing themselves at considerable risk. A recent study found that 52% of companies with more than $10 billion in annual revenue experienced fraud in 2022, for example, with one in five of these companies undergoing at least one fraud attack that cost them $50 million or more.

    How Outdated Payment Processes Put Firms at Risk

    Legacy payment procedures of all kinds are proving increasingly untenable for doing business.

    680K

    incidents of check fraud were reported to FinCEN last year.

    Check fraud has increased dramatically, making legacy payments risky for businesses.

    The Financial Crimes Enforcement Network (FinCEN) recently reported that check fraud nearly doubled over the past year, reaching 680,000 reports in 2022, compared to 350,000 complaints in 2021. This is bad news for businesses that still make payables via traditional means, as the risk of these payments being stolen is higher than ever. A single small public relations firm in New York reported 15 checks from clients being stolen in the mail, with thieves succeeding in cashing 10 of them.

    PYMNTS data backs up these findings, with a recent study establishing that 98% of B2B retailers, manufacturers and marketplaces have been victims of fraud or have missed opportunities to do business with firms that were later revealed to be legitimate for fear of fraud. Out of 65% of businesses that experienced payments fraud overall, 63% faced check fraud.

    Check fraud can take on many different forms, ranging from forged checks to checks intercepted in the mail and falsely endorsed by perpetrators. The simple act of sending paper checks can inadvertently offer bad actors access to a business’s bank account information, which fraudsters can use to wage large-scale schemes.

    B2B payment fraudsters leverage longstanding security loopholes to redirect payments.

    Check fraud is not the only path for B2B payment fraudsters, with other traditional payment methods proving vulnerable as well. One recent study found that 70% of companies still verify their suppliers’ bank account information through phone calls, which fraudsters can easily intercept to redirect payments to their own accounts. More than one-quarter of surveyed businesses that experienced fraud lost more than $100,000, while 5% reported losses exceeding $1 million.

    One of the most pressing threats to B2B payment security is synthetic identity fraud, which differs from traditional identity fraud in that fraudsters fabricate new identities out of whole cloth rather than impersonating real people. This technique can be especially dangerous in B2B fraud, as the sending and receiving accounting teams are rarely personally acquainted and thus have no idea whether the payment in question is being verified by the correct individual. Synthetic fraud costs online lenders $6 billion each year, with the Federal Reserve naming it the fastest-growing financial crime.

    $6B

    is lost each year by lenders to synthetic fraud.

    More sophisticated payment and identity verification methods are clearly imperative to cut back on B2B payments fraud.

    Modernized AP Payment Systems Are Critical for Combating Fraud

    The use of outdated AP systems and processes is leading to significant annual fraud losses that would otherwise be recoverable. This calls for urgent action in upgrading AP systems.

    55%

    of the money lost to scams by Barclays SMB clients in late 2021 was the result of invoice fraud.

    Advanced verification technologies offer promising solutions.

    There are many technologies on the market available for corporates to bolster the security of their AP processes, leveraging advanced technologies like artificial intelligence, machine learning, behavioral analytics and more to develop sophisticated threat profiles and verify their recipients’ identities.

    One example of a promising B2B payment cybersecurity technology is virtual payment cards, with B2B transactions currently comprising 71% of all payments made via this channel. They provide enhanced security over traditional payment options by tokenizing payers’ data while processing transactions, creating a one-of-a-kind and randomly generated code for each payment. This significantly reduces the risk of fraudsters acquiring the data used to conduct a virtual card payment, as well as being able to leverage these details if they do. Furthermore, virtual cards’ digital footprints make suspicious activities easier to track if fraud does occur via this channel.

    The logistics industry is already making moves to improve its B2B payments security, with the majority of firms prioritizing AP innovations for faster and transparent B2B transactions. Modernization also involves embracing cutting-edge digital tools, including enterprise-ready integrations and business analytics, to streamline the AP payments experience.

    Advanced solutions deliver better outcomes.

    Corporates that have partnered with trusted AP and B2B payments security solutions have seen better outcomes than their counterparts that lack this verification stack. Approximately half of the organizations that implemented digital identity verification and fraud prevention solutions reported being very satisfied or more with the systems they implemented, while only 17% of firms that relied solely on manual authentication solutions could say the same.

    Another PYMNTS report found that 46% of corporates that leveraged manual anti-fraud solutions said that customers were reluctant to do business with them for fear of being victims of fraud themselves. In contrast, just 26% of firms using automated solutions said the same.

    Firms Rely on Manual AP Payments Processes at Their Peril

    Firms saddled with manual payments processes and dated AP systems have several critical missions before them to reduce the risk of fraud:

    • Acknowledge that manual payments processes are no longer tenable, as they heighten vulnerability to fraud and operational inefficiencies.
    • Invest in AP innovations that enhance speed, transparency and analytics.
    • Consider a holistic approach to AP payments process and systems modernization with a trusted partner.
    • Implement digital solutions that reliably and securely automate AP processes.

    Decisive action is essential for embracing a robust, digital AP payments solution. Companies that choose a trusted B2B payments solution partner will now have the ability to safeguard against fraud, fortify their B2B relationships and unlock new avenues for growth. Those that do not will be left living in fear — not only about when the next bad actor will strike but also about how many of their customers and vendors will abandon them before they become collateral damage.

    Chris Wyatt

    We’re going to continue to see a lot of adoption and acceleration of accounts payable as a service because finally we’re reaching this critical mass where folks in the B2B space are saying, ‘This has happened for consumer payments. I can go onto Amazon.com and buy things at the click of a button. Why isn’t the B2B payments space more like that?’ The tide is slowly but surely shifting, and having a more digital system is paramount, if not essential.”

    Chris Wyatt
    Chief strategy and product officer

    About

    Finexio is the leading AP Payments as a Service company focused on embedding end-to-end business payment capabilities for mid-market and enterprise organizations into AP software, Procure-to-Pay platforms and financial institutions. Finexio customers benefit from "done-for-you" payments operations services that support 100% of their business payments digitally. CFOs and finance teams seamlessly transition away from manual payment processes to modern, safe and secure electronic payments, realizing significant time savings, reduced payment costs, increased cash flow, fraud prevention and unmatched visibility into their payments data.

    PYMNTS INTELLIGENCE

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multi-lingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    We are interested in your feedback on this report. If you have questions or comments, or if you would like to subscribe to this report, please email us at feedback@pymnts.com.

    Disclaimer

    The Accounts Payable Payments as a Service Tracker® Series may be updated periodically. While reasonable efforts are made to keep the content accurate and up to date, PYMNTS MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, REGARDING THE CORRECTNESS, ACCURACY, COMPLETENESS, ADEQUACY, OR RELIABILITY OF OR THE USE OF OR RESULTS THAT MAY BE GENERATED FROM THE USE OF THE INFORMATION OR THAT THE CONTENT WILL SATISFY YOUR REQUIREMENTS OR EXPECTATIONS. THE CONTENT IS PROVIDED “AS IS” AND ON AN “AS AVAILABLE” BASIS. YOU EXPRESSLY AGREE THAT YOUR USE OF THE CONTENT IS AT YOUR SOLE RISK. PYMNTS SHALL HAVE NO LIABILITY FOR ANY INTERRUPTIONS IN THE CONTENT THAT IS PROVIDED AND DISCLAIMS ALL WARRANTIES WITH REGARD TO THE CONTENT, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT AND TITLE. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF CERTAIN WARRANTIES, AND, IN SUCH CASES, THE STATED EX CLUSIONS DO NOT APPLY. PYMNTS RESERVES THE RIGHT AND SHOULD NOT BE LIABLE SHOULD IT EXERCISE ITS RIGHT TO MODIFY, INTERRUPT, OR DISCONTINUE THE AVAILABILITY OF THE CONTENT OR ANY COMPONENT OF IT WITH OR WITHOUT NOTICE.
    PYMNTS SHALL NOT BE LIABLE FOR ANY DAMAGES WHATSOEVER, AND, IN PARTICULAR, SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, OR INCIDENTAL DAM AGES, OR DAMAGES FOR LOST PROFITS, LOSS OF REVENUE, OR LOSS OF USE, ARISING OUT OF OR RELATED TO THE CONTENT, WHETHER SUCH DAMAGES ARISE IN CONTRACT, NEGLIGENCE, TORT, UNDER STATUTE, IN EQUITY, AT LAW, OR OTHERWISE, EVEN IF PYMNTS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
    SOME JURISDICTIONS DO NOT ALLOW FOR THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, AND IN SUCH CASES SOME OF THE ABOVE LIMITATIONS DO NOT APPLY. THE ABOVE DISCLAIMERS AND LIMITATIONS ARE PROVIDED BY PYMNTS AND ITS PARENTS, AFFILIATED AND RELATED COMPANIES, CONTRACTORS, AND SPONSORS, AND EACH OF ITS RESPECTIVE DIRECTORS, OFFICERS, MEMBERS, EMPLOYEES, AGENTS, CONTENT COMPONENT PROVIDERS, LICENSORS, AND ADVISERS.
    Components of the content original to and the compilation produced by PYMNTS is the property of PYMNTS and cannot be reproduced without its prior written permission.
    The Accounts Payable Payments as a Service Tracker® Series is a registered trademark of What’s Next Media & Analytics, LLC (“PYMNTS”).