The financial world, in particular the banking sector, woke up to a rude shock just a few days ago. The latest Payment Fraud Survey conducted by The Association for Financial Professionals (AFP) has revealed some startling data and conclusions that are already causing bank managers and FinTech pros lose even more nights of sleep, worrying if their systems and networks will be the next one to be hit.
According to the report, B2B payment frauds have reached an alarming rate, between the last two year financial year endings. Upfront on the crime rate chart is the cheque and wire fraud, which saw nearly 75% of the corporate accounts experiencing growing incidents of malicious and fraud attacks. CFOs in these companies admitted that they were hit more times in 2016 than the previous year. The table indicated a sharp rise in this type of crime, up from the earlier 71% in 2015.
The second area where banking frauds were detected in larger numbers was the Business Email Compromise (BEC), a scam which took at least 74% of the clients interviewed, as victims in the business sector. The rate had stood at 64% in the year 2015.
All said, the growing incidence of such systematic white-collar crime raises several questions on bank transaction security as chances are that more companies would walk into the pitfall as the days go by.
One of the reasons for this is that several companies have not yet realized the importance of putting in place internal security systems and controls to ward off banking transaction frauds. It has been established that daily reconciliation and control points that scan financial systems through audits, can help combat the fraud. To prevent cheque system frauds, a company may decide to eliminate the use of paper cheques.
Banks that provide these services do so at a service fee. On the other hand, within the client companies, if an internal system needs to be re-constituted, it means major investments in system revamp. Take SEPA, introduced in Europe, for instance. Because it meant making changes to the digital infrastructure, substantial IT resources were needed. There’s a cost associated to it, and that cost is not small.
Payments through cheques are not only familiar but are also seen as part of a working mechanism, a sort of a business culture – hard to change. Even if the payer wants to adopt to another system, the payee may resist the change to, say an ACH system or any other. It is the same case, vice versa.
Fraudsters and perpetrators of the crime cash-in on such complacent mindsets and are applying sophisticated techniques and modus operandi so that it is next to impossible for someone in the accounts payable department to catch them red-handed. What’s worse, even business entities aren’t aware that they should be on the look-out for such malpractices. 9 out of 10 times, transactions appear to move in a business as usual manner.
Unless decision-makers and corporate finance managers are educated about the threat of these scams in the first place, B2B banking fraud cannot be combated.
Fortunately, of late, companies in the likes of ECS Fin have developed internal digital transaction systems that are affordable solutions to banks and financial entities to implement internal controls and security in their money movement operations. Their system design, implementation cost and training downtime have been calculated to be amongst the most competitive in the industry. If that actually holds true, brighter skies could be ahead in the banking and financial sector.