Thursday 18 June 2020 3:24 pmApater Capital Talk

Out of crisis comes opportunity… for fraudsters

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City A.M. contributor

‘Out of crisis comes opportunity’ is usually said with positivity in mind. In the current context, for example, entrepreneurs discovering ways to successfully diversify their business.

What is less frequently spoken of, though, is how bad practice and criminality can emerge, grow or even thrive during a crisis. Criminals see opportunities in crises, too.

So, many of the findings in a dataset published this week examining trends in business payments make for troubling reading. One of the top-line findings of Bottomline Technologies’ ‘2020 Business Payments Barometer’ is that businesses are suffering greater losses year-on-year due to payment fraud.

Small- and medium-sized companies have lost more money over the past year due to payment fraud, with their losses having increased by 14% and 38%, respectively, from 2019 to 2020, according to the survey. 

More than half – 58% – of financial decision-makers said they view losses due to payment fraud as ‘part and parcel of running their business’.
It’s important to clarify what is meant by fraud in the context of this survey. Pollsters specifically asked about: insider fraud and collusion (for example, stealing/diverting company funds, inflated expenses and ‘ghost employees’); ‘authorised push payment’ fraud (also known as ‘app scams’), where victims are tricked into making bank transfers to an account posing as a legitimate payee – a growing global problem; and external cyberattacks, such as data breaches and malware. 

Smaller businesses feel the pain

The dataset is the fifth annual release presented by the US-headquartered fintech company, which used Ipsos Mori to survey 800 financial decision-makers across England, Wales and Scotland.

There was some positive news amid the gloom. Respondents at organisations with 10,000+ employees (or turnover of at least £500m) recorded a 4% decrease in fraud losses in the past year. Also, while money lost due to fraud has increased, individual occurrences overall have decreased: the number of respondents saying that fraud impacted their business fell from 45% in 2019 to 34% in 2020.

Nonetheless, the headline numbers are stark – and seem yet starker in these challenging times: the average loss suffered by a medium-sized business due to fraud is put at £164,000. Of those surveyed, 81% were unable to recover more than half of their losses caused by fraud, a figure that rises to 88% for small businesses. The smaller the business, the more the losses will hurt. 

Dan Bellis, senior policy advisor at the Federation of Small Businesses (FSB), was among the panellists at a webinar held earlier this week to discuss the survey’s findings. He said: “Too often SMEs feel they do not have the tools, time or the expertise to try and recover fraudulent losses. Becoming a victim of fraud or falling to scams can be devastating to smaller businesses.”

The data was gathered before the country’s coronavirus-triggered lockdown, during which time authorities have warned that criminals have sought to exploit the pandemic. The National Crime Agency urged people to be aware of fraud and scams back on 26 March – just days after lockdown began.

“Since last year’s report we’ve seen an almost universal increase in the value of fraud losses with little improvement on recuperation. And given the challenge of Covid-19, this picture may look somewhat gloomier,” said Bottomline’s managing director for Europe, Nigel Savory, this week.
As digitisation of business life accelerates, opportunities for fraud increase. But so do countermeasures. As an example, regulators have introduced ‘Confirmation of Payee’ – an account name-checking service – to reduce the impact of APP fraud (and human error) when making payments.

In respect of other trends, ‘mobile payment technologies’ top Bottomline’s charts for the second successive year as the most likely factor to have the greatest influence on business payment processes over the next 12 months. This could, in part, be influenced by financial decision-makers’ expectations and experiences around the ‘consumerisation’ of business payments, Bottomline said. 

Stay alert to “constant threat”


Fraud is one of the last things that business owners want to be spending time worrying about, even in good times.

“Fraud not only results in a financial loss, but often it can also have an impact on the mental health of small business owners too. Many businesses do their best to avoid fraudulent losses, but the constant threat of scam artists, the associated losses, and pressures that come with running a small businesses can be too much for some,” said Bellis.

Looking ahead, he sees a mixed picture on the fraud front. “Fraud is an ever evolving battlefield,” he reflects. “As business grow, they get better at protecting themselves against various attacks, however as they grow they also become bigger targets and more sophisticated attacks occur. Without support from banks and financial services providers, SMEs are set to keep repeating this cycle, and the fight between small businesses and the fraudsters will remain largely static.”

Government’s current coronavirus message to the public is ‘stay alert’. The same message applies to businesses as regards payments fraud.  

What else is on the minds of SME finance specialists? Check out Apater Capital finance director David Hughes’s article on SME accounting in a virtual world

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