Payment Fraud: 5 Current Trends You Need to Understand

Each year, the Association for Financial Professionals releases a comprehensive report into payments fraud. Based on a survey of 741 financial professionals, the 2015 report is a timely and detailed look at the payments fraud landscape.

The professionals interviewed came from 20 different industries, with manufacturing (20%) and banking (11%) providing the most responses. 43% of respondents were from public companies, and half were from companies with annual revenues over $1 billion, so the survey had a focus on larger businesses.

Even so, the 2015 report is rich in data and trends which yield important insights about payment security for businesses of any size. In this post, we examine five of the most important.

1. Payment Fraud: A Case of Not If but When

A disturbing 62% of respondents said their organizations were targeted for payments fraud in 2015, up from 60% in 2014.

This number is down from an all-time high of 73% in 2009. But nearly two in three companies are still facing an incident of payments fraud every year.

Drilling down, there was not a substantial difference between larger and smaller companies, with 32% of companies with revenue under $1 billion reporting increased fraud activity, compared with 26% of companies with over $1 billion in revenue.

The lesson is clear: businesses need to assume they will be the target of fraud and plan accordingly.

2. Checks Are Still Highly Vulnerable to Fraud

2015 reinforced an already clear message. Checks are by far the payment form most vulnerable to fraud, and reducing reliance on checks is likely to reduce the risk of fraud.

Of businesses surveyed, 77% suffered actual or attempted check fraud. Of those targeted, 15% suffered financial loss. Worse, in a plurality of those cases (45%), check fraud caused the highest dollar amount of financial loss.

Increasing the use of electronic payment systems like ACH can reduce the risk of fraud. If checks are used or accepted for payments, it is critical to put in place protections against check fraud. As the AFP’s report observes:

Fraudsters often try to “attack” companies in order to identify those whose payment methods can be most easily breached. If they find that an attack attempt faces security “obstacles”, fraudsters will move on.

Physical measures, such as tight control of check stock and dual-tone watermarks on checks, and procedural measures, such as positive pay and daily reconciliation, are both effective ways of reducing fraud.

3. Jump in Wire Fraud Attempts Is Troubling

The incidence of wire fraud nearly doubled in a year, with 27% of organizations reporting actual or attempted wire fraud in 2015, compared to 14% in 2014. Given the Wall Street Journal was calling wire fraud an “epidemic” back in 2013, this jump is an alarming trend.

The reasons for this trend are unclear. It may be a shift of focus for fraudsters to accounts payable departments, according to the AFP.

Another possible reason is that many cases of wire fraud are computer-based. Fraudsters forge emails authorizing wire transfers, engage in elaborate social engineering, or simply hack email accounts and issue fake instructions. Hacking generally becomes a near-constant problem for businesses, and increased wire fraud may, be just a symptom.

One of the best protection against wire fraud, particularly for advisers and brokers, is staff awareness, according to Deloitte. Staff should be trained to spot suspicious emails, and exercise common sense a phone call before acting on strange instructions can prevent an attack.

4. Cautious Optimism About EMV Chip Technology

92% of respondents believe that EMV-chip (‘chip-and-PIN’) technology for credit and debit cards will be effective in reducing card fraud at the point of sale. It’s far more difficult for fraudsters to obtain a PIN than it is to steal card details.

There is a concern, however, that any success in preventing card fraud will direct fraudsters’ attention elsewhere with checks once again considered to be the most likely target.

5. Most Losses Are Low to Moderate but Not All

46% of companies surveyed did not spend money in 2015 to defend against or clean up payments fraud. Of those that did, 41% spend under 15%.

The risks of serious losses remain real, however. 3% of respondents came from companies that lost over a quarter of a million dollars to payments fraud. If all respondents came from different organizations, over 20 companies suffered losses on that scale.

The companies most vulnerable to large losses were those with revenue over $1 billion and more than 100 payment accounts. The combination of size and complexity seems to make fraud more attractive and detection more difficult.

The message, in brief, is that constant vigilance is needed to prevent payment fraud. Unfortunately, fraud is only likely to increase. For more information about how E-Complish can help your business with secure payment solutions, contact us today.