Insight & Analysis

Firms battling ever harder against payment fraud

Published: Jun 2019

Padlock ontop of cards and wallet, sitting on a laptop keyboard

Companies are continuing to see payment fraud escalate, with both external and internal malicious actors responsible for deceiving financial decision makers.

Many businesses in Britain are struggling badly to fully recover losses from fraud, with 87% of financial decision makers saying they are unable to recover more than half of them, with the figure rising to 93% among small and medium businesses specifically.

The findings have emerged in a study by Bottomline Technologies, a provider of financial technology for business payments. It says the average financial loss through company fraud in Britain currently sits at £240,092, with the majority of losses having jumped from within the £10,000-£49,000 bracket in 2018 to between £50,000 and £250,000 this year.

Bottomline’s fourth annual Business Payments Barometer also reveals that external cyber fraud is of most concern to firms, with 78% of respondents noting they are concerned either ‘a fair amount’ or ‘a great deal’ about such an attack impacting their business. They are also concerned about being deceived into making a fraudulent payment (68%) and insider fraud and collusion (61%) taking place within the business.

Regulatory uncertainties

Despite the increasing number of payments regulations that have been 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%), new payments architecture (51%) and ISO 20022 (52%).

The study says that such a scenario means many businesses risk missing out on the opportunities that new regulations can provide. With open banking, for example, only 17% of financial decision makers believe they are prepared to embrace the new model.

“Open banking has the potential to free up time previously spent on back office activity. 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),” says Nigel Savory, Bottomline’s Managing Director, Europe. “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.”

Real-time payments

In a move which mirrors the increased consumer demand for faster payments, over one-third (37%) of 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,” says 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.”

Brexit a big challenge

With the UK’s exit from Europe still not resolved, it’s not too surprising survey respondents ranked ‘Changes in trading environment’ as the second greatest influence on payment processes over the next 12 months.

The Barometer suggests 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 vast 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.

Sanctions processes

With an increase in global sanctions and heightened geopolitical tensions, the vast majority of 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, the majority (70%) of respondents believe it is the responsibility of banks rather than themselves to comply with such measures. The study says such a belief corresponds heavily with the large perception (71%) that banks are the institutions most impacted by anti-money laundering regulations but adds: “Whether this model is sustainable is questionable. What is clear is that it is in corporates’ best interest to take more accountability for the sanctions-checking of their payments.”

Leveraging uncertainty

Savory says that while uncertainty and volatility continue to define 2019 amid mounting concerns over international payments, cyber fraud and looming regulation, businesses have “the opportunity to surge ahead of the pack by embracing change and reaping the rewards of early adoption.”

He adds: “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.”

Bottomline’s research was carried out in partnership with Ipsos Mori and 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. Financial decision makers are defined as those who input solely or as part of a group in to the purchase of accounting, tax or financial services.

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