FinServ Layoffs Increase Risk of Payment Fraud

The overall economic outlook of the U.S. may have improved since early in the year, but layoffs continue across a variety of sectors. Few have been as deeply affected as the financial services sector, which increased its layoff rate by more than 400% compared to 2022.

Leaner teams, while shedding some costs, are ripe for other issues, including process and control breakdowns. Companies can little afford this when it comes to fraud prevention, and for finserv companies that means ensuring they prevent payment fraud.

Growing payment fraud risks

As technology advances, so do the methods and schemes deployed by fraudsters. Phishing emails, for example, which were the most common type of cybercrime reported in the U.S. in 2022, are getting harder and harder to spot. Cyber criminals are more sophisticated than ever before, and their relentless pursuit of exploiting vulnerabilities within organizations, specifically usurping the identity of suppliers to collect their payments, demands a proactive response from businesses.

The threat is pervasive. Large companies today work with thousands of vendors locally and across the world, which increases their exposure. In fact, six out of 10 companies were affected by B2B payment fraud in the United States last year, according to Trustpair’s analysis, with 43% targeted more than once. Considering vendor payment fraud is a $20 billion annual issue, companies looking to cut costs through layoffs could be inadvertently driving significant financial consequences for their businesses in the long run. Almost a quarter that fell victim to fraud in 2022 lost more than $100,000 in just one fraud event. 

Effects of payment fraud go beyond the financial. Almost a quarter affected companies indicated fraud damaged their reputation with customers, 17% said they faced regulatory consequences, and 10% experienced reputational damage with investors.

Protecting against payment fraud

There are several steps teams can take to protect their businesses against payment fraud while operating with leaner teams.

Ditch manual controls

Vendor payment fraud is most often perpetrated with credential and information changes on legitimate payments. This makes fraud incredibly difficult to catch without the proper tools and resources. Yet most companies still rely on fallible manual processes to confirm bank accounts and the identity of vendors before issuing payment. Our research found that 70% of companies still use phone calls and human callbacks to check supplier credential changes. These methods aren’t built to handle today’s fraud landscape and catch fraudsters pretending to be trusted suppliers. The manual processes are also time-consuming for teams to manage, which overloads teams that are already stretched thin due to scaled-back workforces.

Automated controls, such as those that validate bank accounts and ensure the company about to get paid is a real business and an existing supplier, significantly strengthen fraud prevention programs and increase team capacity. 

Get vendor data in order

An estimated 30% of existing vendor data in financial systems is outdated. This unreliable data leaves companies exposed to fraud. A vendor could change banks, get acquired or experience a different type of event that necessitates changes to banking information. It can take a while for vendors to alert all of their buyers and partners of these shifts and for the information to get updated in companies’ databases. Meanwhile, payments are due, and the risk of financial teams sending the money to a fraudster grows.

Break down silos

Finance, treasury and accounts payable teams often work in silos. This amplifies the risk of fraud because it often leads to process breakdowns across the procure-to-pay chain. Each team might not have visibility into the fraud prevention steps that colleagues in other departments have taken. Treasury teams, for example, aren’t always sure that the payments that the accounts payable team prepares are validated, which could lead them to issue payment to the wrong company or a fraudster.

Fighting payment fraud is a shared responsibility. All departments involved in the payment process need to get on the same page about governance and the steps that need to be taken at every stage to prevent fraud and who is accountable for each. Without collaboration, alignment and trust, it’s easy for breakdowns to occur and for key fraud prevention steps to get overlooked.

Embracing innovation

Most U.S.-based companies say they expect payment fraud attempts to increase in the next 12 months. Growing adoption of ACH, instant payments and other digital payment methods are increasing companies’ likelihood of experiencing fraud events. A down economy creates natural pressures to scale back and do more with less. But it’s paramount that companies simultaneously look for ways to strengthen and streamline fraud prevention processes and empower their teams — or they risk falling victim to the very real and costly threat of fraud.