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Combatting payments fraud: Key insights every treasurer and CFO must know

The rapid evolution of technology has propelled payments to the forefront of corporate finance and treasury. However, this growth in payments has also led to a marked increase in both existing and emerging forms of payment fraud, posing a critical concern for finance chiefs, treasurers and their teams.

As payment fraud becomes more sophisticated, intricate, deceptive, pervasive, and costly, it is imperative for business leaders, CFOs, and treasury teams to stay vigilant and well-informed. Armed with critical insights, they can proactively combat payments fraud threats and safeguard their organizations from financial and reputational damage.

Banks identify payments fraud risk as the leading operational challenge for corporate clients

Seventy-seven percent of bank respondents see risk of payments fraud and cyber security threats as the primary operational challenge for their corporate clients, according to the newly released 2024 Treasury Perspectives Survey Report produced by Strategic Treasurer and underwritten by TD Bank.*

                                        Payments Fraud: Top Operational Challenge for Corporate Clients

Source: 2024 Treasury Perspectives Survey Report

This might explain why, as per the 2024 Treasury Perspectives Survey Report, bank and corporate respondents rank security and control over payments as the most important payments feature.

                                        Most Important Payments Feature

Source: 2024 Treasury Perspectives Survey Report

Treasury department most likely to detect payments fraud

Considered the superintendent of payment security, Treasury is also the department (61%) “Most likely to uncover both attempted and actual payments fraud activity, followed by Accounts Payable (47 percent)”, the Association for Financial Professionals® (AFP) 2023 Payments Fraud and Control Survey Report noted. This is not unexpected, since these two teams scrutinize and review payment transactions “most often”.

Source: 2023 AFP Payments Fraud and Control Survey

The Accounting/Controllers department (27%) also plays a role in identifying both attempted and actual cases of payment fraud. While treasury and finance operations lead in fraud detection, departments such as Accounts Receivable, Sales Operations, Audit, Procurement, and Human Resources have also discovered instances of payments fraud.

US companies ready to cut ties with organizations impacted by payment fraud

Two-thirds (66%) of US companies state they would sever ties with an organization that falls prey to payment fraud and loses their payment, putting business relationships increasingly at risk, reveals Trustpair’s survey report Fraud in the Cyber Era: 2024 Fraud Trends and Insights. Yet, financial loss isn’t their only concern.

C-level finance and treasury leaders are particularly troubled by reputational damage, particularly in relation to customers (51%), investors (50%), and suppliers and vendors (45%). “This can harm business further with significant loss of business activity in the long run,” the Trustpair report points out.

Moreover, vendor fraud (47%)—one of the top three fraud types—poses a significant challenge. In such cases, defrauders redirect vendor payments into their own accounts, leading to vendors not receiving their payments on time—or at all. The report notes that this could strain buyer-supplier relationships and cause broader damage beyond financial losses, such as tarnished associations.

AI's paradox in payments fraud: A tool for committing and combating fraud

The role of artificial intelligence (AI) in payments fraud reveals a striking duality. On one hand, AI can be harnessed by criminals to execute fraud; on the other, it can serve as a powerful tool and vital ally for detecting and thwarting such fraud.

Amid the paradox of AI, the ongoing battle between its use in engineering payments fraud and its potential for prevention underscores the possibility of AI becoming a formidable asset in the fight against payments fraud. As we observe the dilemma of AI being exploited to perpetrate payments fraud versus being used to safeguard against such threats, we are likely to see advancements in AI technology tilt the scales in favour of AI-powered fraud prevention solutions that identify and neutralize payments fraud before it leads to substantial financial losses and reputational harm for organizations worldwide.

In recent times, the use of generative and predictive AI in fraud prevention systems has garnered significant attention among finance professionals, treasury departments, and cybersecurity experts.

The  PYMNTS Intelligence Generative AI Tracker®: Can Generative Al Break the Payments Fraud Cycle?, emphasizes that “Generative AI could become a cornerstone of modern payments fraud prevention strategies, promising significant improvements in accuracy, efficiency and cost savings.” At the same time, predictive AI “Has achieved nearly prerequisite status in recent years for modern fraud detection.”

Generative AI and predictive AI serve unique but complementary purposes in combating payments fraud. However, as these technologies converge and their effectiveness improves, “The payments landscape will move closer to a watershed moment when the opportunity cost of even attempting payments fraud will likely far outweigh the potential gains”, the PYMNTS Intelligence Generative AI Tracker® suggests.

As generative and predictive AI continue to advance, the paradox of AI's dual role in payments fraud becomes even more pronounced. While the escalating sophistication and creativity of AI-enabled attackers pose a pervasive threat, the PYMNTS Intelligence Generative AI Tracker® reckons that AI’s proficiency in uncovering nuanced patterns, identifying complex fraud schemes across multiple accounts or channels, and generating synthetic data and identities can augment the precision and speed of fraud detection. By doing so, AI has the potential to not just counter but outpace fraud attempts ensuring robust payments security.

Employees are either your best defence against fraud or the weakest link

The Association of Certified Fraud Examiners (ACFE) estimates that fraud accounts for 5% of a typical organization’s annual revenue. They warn, “As criminals continue to perpetrate fraud, it is no longer a question of if fraud will occur, but rather when it will occur at an organization.”

Keeping this warning in mind, it is important to note that over the years, organizations that gain the upper hand against payments fraud through a proactive approach—while being ready to respond to fraud occurrences—demonstrate, among other factors, responsible employee behaviour represented by specific, ongoing, and updated payments security training, along with a solid understanding and awareness of fraud prevention. This approach makes organizational staff the first line of and best defence against fraud. Conversely, insufficient or ineffective employee payments security training, as well as uninformed or careless employee behaviour, can engender payments fraud and play a major role in exposing businesses to risks and vulnerabilities from within, thus making employees the weakest link in payments security and fraud prevention.

With a quiet yet strategic plan, cybercriminals are infiltrating corporations, focusing on key executives, systems, networks, servers, data and infrastructure to orchestrate payment fraud. In fact, payment fraud worldwide is forecasted to maintain its upward trend, potentially costing $40.62 billion by 2027.

As payment fraud attacks become more frequent and targeted, with payouts greater than ever, CFOs, corporate treasurers and their teams are expected to ramp up efforts and strengthen their commitment to payments security. In this context, gaining a thorough understanding of the most prevalent and emerging types of payment fraud will facilitate a strategic preventive stance that enhances both detection and protection against payment fraud. Additionally, consistent and specialized payments fraud training (securetreasury.com) for corporate treasury professionals will aid in mitigating payments fraud, thereby decreasing the impact of these losses in the fast-changing payments landscape.

In conclusion, with the surge in global real-time payments comes a significant downside: faster payments mean faster fraud, and as highly adept and well-funded bad actors increasingly target large companies and find ways to evade detection, it is necessary for multinational corporations to increase automation, embrace fraud risk analytics solutions, and adopt enduring principles for securing their payment processes amidst constantly evolving threats.

These measures will empower CFOs, corporate treasurers and their teams to fight back against cybercriminals in 2025 and beyond, defend their reputation, and preserve their business relationships.

 

⃰ Disclosure: Strategic Treasurer owns CTMfile.

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