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Why Eliminating Checks Isn't Enough to Stop B2B Payments Fraud

Our CEO, Neal Anderson, sits down with PYMNTS' CEO, Karen Webster, to discuss the implications of the rise in B2B payments fraud and why exclusively eliminating checks isn't enough to stop it.

How to Automate AP Series: Podcast #6

If you missed our fifth podcast in this series, you can access it by clicking this link: Virtual Card Adoption Strategies for AP.

Even before 2020's Black Swan event, most forward-thinking financial leaders agreed that businesses were rapidly approaching a more modernized digitized world.  

In light of recent events, the prevailing prediction throughout the B2B payments landscape is that paper checks (and paper in general) will be all but extinct by 2030. 

In addition to being a cumbersome payment option, paper checks lead the charge in both average cost-per-transaction and fraud attempts (attempted and successful), effectively ensnaring organizations that are still heavily reliant on paper into a dual threat to the bottom line.

Fraud is on the rise from within and from without, especially in remote working environments, and perpetrators continue to take advantage of the lack of security associated with paper payments.   

Speaking with PYMNTS CEO, Karen Webster, OnPay Solutions President and CEO, Neal Anderson, explained that it's one of the many reasons why chief financial officers and treasurers should continue to drive their firms toward electronic B2B payments. Yet, Neal noted, migrating away from paper checks isn't enough to fully protect the enterprise.

A Rising Risk From Home

According to Neal, while CFOs and corporate treasurers have always been concerned about B2B payments fraud infiltrating their accounts receivable (AR) and accounts payable (AP) operations, that risk is more inflated today than ever.

"Now, all of a sudden, you have thousands and thousands of employees having access to your network in a remote environment. The risk just multiplies. From our perspective, we've not only seen the concern for fraud multiply, but also the opportunities for fraud." - Neal Anderson 

That's particularly true with paper checks because, in many cases, AP personnel were forced to bring check printing equipment home with them, giving them instant - and unobserved - access to the payments network. This environment has made it easy for employees with nefarious motives to quickly and easily steal company assets. 

But it's important to note that internal attempts are not the only instances contributing to the overall rise in fraud attempts, and paper checks are not the only weak spot. 

Beyond ePayments Adoption

Historically fraud occurs in many forms beyond paper checks - there are levels of risk associated with ePayments as well. Perhaps the most ominous target for fraud in businesses worldwide is something we're all familiar with - some of us access it over 120 times a day - business email compromise (BEC).  

BEC fraud is when a fraudster spoofs a legitimate email address in attempt to redirect supplier payments into a fraudulent bank account. This type of fraud is growing more and more sophisticated, with some criminals gaining access to email servers in real-time. 

Another popular strategy for BEC Fraudsters is to create duplicate invoices or submit a request to update payment information. In the past, AP professionals would have been able to quickly confer with their colleagues to test the legitimacy of the request. Remote working environments have made that more difficult.  

"We hear story after story of folks moving money without taking the time to validate it. For CFOs who are listening, I encourage them to make sure everybody on the team knows there is a multi-tier process for authenticating those payment requests." - Neal Anderson

That multi-level authentication process isn't only for wires and ACH transactions, either. It should also be in place for invoices received from vendors who are not yet on a master vendor list. Such cases are "big red flags" that must be looked into before any payment is made, Neal warned.

It's Not ‘If,’ But ‘When’

One of the most effective ways to protect your business from B2B payments fraud is to migrate away from paper checks and invoices or eliminate them entirely. But that alone won't create immunity to other fraudulent activity. 

Almost every payment option carries a risk for fraud. However, if CFOs are tactful about how they migrate to AP automation and which payment methods they choose, they can increase their security by 99%.

Virtual cards, in particular, are a crucial weapon against fraud. Unlike their counterparts, purchasing cards (P-Cards), virtual cards (V-Cards) are single-use credit cards designated for a specific amount that self-destruct after use. They can also be assigned to a particular invoice, adding an extra layer of security.   

Developing internal controls is vital to mitigating risks like BEC and invoice redirect scams. Anderson describes these authentication measures as often "the last step in the chain to stop fraud,” and says organizations must develop these controls to function in a remote working environment.

Training employees to identify red flags, like requests to change bank account details, is another important step, while Anderson also pointed to supplier onboarding processes that can prevent theft from the onset.

"Perhaps most important is for professionals to be educated about the risks and to be on guard. Everybody needs to be suspicious. Everybody should worry that this activity is happening. If it hasn't happened to you, it will. It's only a matter of time." - Neal Anderson

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