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Payments fraud makes heavier impact on UK companies

The impact of payments fraud in the UK is escalating, with a survey finding that 87% of financial decision makers in the country’s businesses are unable to recover more than half of their losses caused by fraud, while the figure rises to 93% among small and medium enterprises (SMEs).

The average financial loss through fraud now sits at £240,092 (US$301,000), and the majority of fraud losses has increased from within the £10,000-£49,000 bracket in 2018 to between £50,000 and £250,000 this year.

The latest figures are revealed in Bottomline Technologies’ 2019 Business Payments Barometer, its fourth annual report. This reveals that external cyber fraud continues to draw the most concern, with 78% of respondents noting they are concerned either ‘a fair amount’ or ‘a great deal’ about such an attack impacting their business.

UK financial decision makers are also concerned about being deceived into making a fraudulent payment (68%) as well as insider fraud and collusion (61%) taking place within the business.

A call for payments clarity

Despite the increasing number of payments regulations introduced in the past two years, many respondents say they do not understand new industry initiatives. Among those saying they feel unprepared for upcoming regulation, the majority are unaware of the benefits of initiatives such as open banking (54%), the UK’s New Payments Architecture (NPA) initiative (51%) and ISO20022 (52%).

Bottomline suggests such a scenario means many businesses risk missing out on the opportunities that new regulations can provide. Specifically regarding open banking, only 17% of financial decision makers cite their preparedness to embrace the new model.

“Open banking has the potential to free up time previously spent on back office activity,” said Nigel Savory, managing director, Europe, Bottomline Technologies. “For example, small businesses can easily gain access to their different banking transactions, balances and history through trusted organisations – whether that’s a financial institution of choice or an approved payment service provider (PSP).

“Those yet to embrace the new model could potentially risk falling behind the frontrunners when it comes creating efficiencies within their own organisation or offering new value-add services to their customers.”

In a move which mirrors the increased consumer demand for faster payments, 37% of UK financial decision makers say their businesses plan to adopt real-time payments within the next 12 months. In addition to the existing 53% who have already adopted the technology, this indicates 90% of those surveyed are set to implement real-time payments by the end of 2020.

“Real-time payments brings heightened visibility and efficiency to the payments landscape and will be especially impactful for small businesses looking to improve their cash flow and have their debts settled more quickly,” said Savory. “Given that the technology has been in place since 2008, smaller companies have begun to expect the same payment experience they are accustomed to as consumers.”

International volatility and Brexit

With the UK’s exit from Europe still unresolved, survey respondents ranked ‘Changes in trading environment’ as the second greatest influence on payment processes over the next 12 months.

In the context of Brexit, the Barometer suggests that those who have previously outsourced services to continental Europe are renewing their contracts on a much more short-term basis, pursuing a ‘wait-and-see’ strategy. Research respondents also cite concern about finding the same value for money and experience in the UK for business services such as underwriting.

The majority (76%) of financial decision makers surveyed also indicated they are fairly or very concerned over establishing new, creditworthy trading partnerships, as well as the transparency of cross-border payments fees (73%), and FX, tax and tariff changes (76%).

In a move signalling heightened concern over international processes and forming new trade relationships, the Barometer reveals that 25% of financial decision makers plan to stop making international payments. However, this is offset against the 53% who intend to continue and the 10% that intend to start making international payments.

Outsourcing responsibility over sanctions

With an increase in global sanctions and heightened tensions, most respondents expressed their desire to be involved in the process and have more insight. Of those surveyed, 84% would like to know if a payment is being made to a sanctioned organisation, and 81% would like to be able to track all payments to their destination.

Despite wanting more visibility, 70% of respondents believe that it is the responsibility of banks rather than themselves to comply with such measures. Such a belief corresponds heavily with the large perception (71%) that banks are the institutions most impacted by anti-money laundering regulations. “Whether this model is sustainable is questionable,” comments Bottomline. “What is clear is that it is in corporates’ best interest to take more accountability for the sanctions-checking of their payments.

“Uncertainty and volatility continues to define 2019, with concern over international payments, cyber fraud and looming regulation,” adds Savory. “Such an environment, however, provides businesses with the opportunity to surge ahead of the pack by embracing change and reaping the rewards of early adoption.

“Regulations such as open banking have huge potential to radically alter the payments landscape, and we are beginning to see small companies hold consumer-like expectations when it comes to the seamless experience of real-time payments. Businesses are naturally cautious of volatility, but with a careful approach, such a paradigm can provide a competitive advantage to business by allowing them to offer cutting-edge payments capabilities.”

The research was commissioned by Bottomline and conducted in partnership with Ipsos Mori. It consisted of an online survey among 400 financial decision makers in England, Scotland and Wales, and included a series of follow-up in-depth interviews with those who had completed the survey. The fieldwork was carried out during February and March 2019.

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