In today's business landscape, companies face a constant battle against a wide range of cyber threats and fraudulent activities. Among these threats, one of the most harmful is business payments fraud. The financial technology, cyber-security, and digital payment sectors have grown tremendously in recent years. With this growth, various tools and technologies have emerged to protect consumers from fraud. Banks have also improved their security measures, especially for credit card transactions, offering consumers more protection against unauthorized charges and identity theft. However, when it comes to business-to-business (B2B) payments, the story is different.
While there have been significant advancements in consumer protection, B2B payments have not seen the same level of innovation and security enhancements. This gap underscores the urgent need for specialized and robust solutions tailored to the unique complexities of B2B financial transactions. As businesses increasingly rely on digital platforms for their financial operations, ensuring the safety and reliability of B2B payments becomes critical.
Business payment fraud, sometimes known as invoice fraud or corporate payment fraud, is a deceptive and financially damaging scheme that targets businesses and organizations of all sizes in every industry. This type of fraud occurs when malicious actors or fraudsters exploit vulnerabilities in a company's financial systems and processes to illicitly obtain funds or manipulate financial transactions for personal gain. It thrives on the ability to compromise weaknesses within an organization's financial infrastructure, infiltrating it through deceptive means. Threat actors employ a myriad of techniques, including phishing, social engineering, and the crafting of counterfeit invoices or payment requests, all aimed at taking advantage of unsuspecting employees.
In aggregate, the financial losses to fraud and cyber-attacks on business payments amounts to billions of dollars every year. Incidents of B2B payment fraud have accelerated over the past decade and experts predict it will only get worse. While the losses from business payment fraud can be devastating, there are also risks of reputational damage and even legal complications that can arise.
B2B payments fraud is a significant problem for companies because it has a material impact on the business’s bottom line. Unfortunately, it's getting worse over time as more advanced tools are developed to execute fraudulent schemes and as threat actors become more sophisticated. This type of fraud can be injurious to companies worldwide.
There are many statistics that illustrate the size of this problem. According to the 2023 AFP Payments Fraud and Control Survey Report by the Association for Financial Professionals (AFP) underwritten by J.P. Morgan, 84% of organizations with annual revenue of at least $1 billion experienced attempted or actual payments fraud in 2022. And in 2022, a significant majority, specifically 71%, of companies that fell victim to payments fraud, experienced it through Business Email Compromise (BEC) attacks. An FBI PSA noted that $50 billion was lost on business email compromise alone between 2013-2022. Data from Corvus Insurance showed that fraudulent funds transfer has been among the top 2 sources of cyber loss in terms of frequency in 2022. Of note, larger organizations with annual revenues exceeding $1 billion were found to be particularly vulnerable to BEC scams and B2B payment fraud. And because large enterprises can have thousands of vendors to pay in regular cycles, they succumb to the manual challenges of having to validate and keep track of all these payments, making them a prime target for this type of fraud.
Threat actors use many sneaky tactics to manipulate businesses to give them unauthorized access to funds or sensitive financial information. The following are some of the most common tricks and attack vectors they employ to steal funds from businesses.
Spoofing is a cyber attack where malevolent actors manipulate their digital identities to impersonate trusted entities. These cybercriminals craft false email addresses, websites, or communication channels that closely mimic those of reputable organizations, creating an illusion of legitimacy. Through this tactic, fraudsters lure unsuspecting individuals into paying them instead of the right vendor. Spoofing schemes leverage psychological manipulation, using urgency or fear to coerce victims into taking ill-advised actions, such as clicking on fraudulent links or sharing sensitive information. Once the perpetrators obtain this data, they gain unauthorized access to accounts and can exploit it and wire funds to their own bank accounts.
Business Email Compromise (BEC) attacks involve cybercriminals gaining unauthorized access to email accounts, often through techniques like phishing or social engineering. Once inside, these malicious actors closely monitor the communication patterns of the victim organization, gaining deep insights into their business processes, payment cycles, and key personnel. With this information at their disposal, the perpetrators then craft highly convincing emails that appear to originate from trusted sources within the organization. These emails typically make requests for urgent financial transactions, often in the form of wire transfers or changes to payment details. When unsuspecting employees fall for this scam and follow through with these transaction requests, the funds are diverted into the cybercriminals' accounts, again resulting in significant financial losses for the victim organization.
Social engineering refers to a set of manipulative techniques used by fraudsters to dupe individuals or organizations into divulging sensitive information, performing certain actions, or making financial transactions under false pretenses. Instead of relying on technical exploits or hacking skills, social engineering exploits human psychology and the natural inclination to trust others. One common form of social engineering is phishing, where fraudsters send emails or messages that appear legitimate but are meant to manipulate the recipients. Social engineering attacks can be highly effective because they target the human element, manipulating emotions like fear, curiosity, or urgency.
Insider fraud is a set of fraudulent activities or malicious actions perpetrated by individuals within an organization who have privileged access or insider knowledge. Often times these individuals are current or former employees, who misuse their position, authority, or familiarity with the organization's systems and processes. What sets insider fraud apart from other types of attacks on business payments is the insider's intimate knowledge of the organization's weaknesses and vulnerabilities. These attacks often go unnoticed until significant damage has already occurred, such as millions of dollars siphoned off into fraudulent bank accounts over time.
A Financial Enterprise Resource Planning (ERP) system attack is a targeted cyber threat that focuses on compromising and exploiting an organization's financial management software. ERP systems are comprehensive platforms used by businesses to manage crucial financial functions, including accounting, budgeting, payroll, and financial reporting. Given their central role in managing financial data, ERP systems are attractive targets for cyber criminals seeking to gain unauthorized access, manipulate financial records, or steal sensitive information. Once a threat actor attacks the ERP, they will have access to financial information that can assist them in their efforts to divert payments from where they’re supposed to go and steal funds.
In this deceptive scheme, scammers adeptly assume the identities of high-ranking executives or CEOs within an organization. Armed with this false authority, they exploit the trust and respect these positions command and send convincing and often urgent payment requests to employees. These fraudulent requests typically assert that immediate funds must be paid quickly to a certain vendor. The urgency of these communications from what appears to be a high-ranking executive prompts the employee to act quickly, often without verifying the legitimacy of the request. Regrettably, this can lead to employees unwittingly transferring funds to the fraudsters' accounts.
Claim fraud is a pervasive issue within the insurance industry, encompassing both false or exaggerated claims made by policyholders and deliberate attacks orchestrated by fraudsters who impersonate legitimate customers. This type of fraudulent activity presents a significant challenge for companies, as it can not only result in substantial financial losses, but it can also negatively impact the overall integrity of the insurance system. Policyholders engaging in claim fraud may submit claims that contain fabricated or inflated information to receive larger payouts than they are entitled to. Or they submit claims and change the payment information so that funds are diverted away from the right customer. These false claims can pertain to various types of insurance, such as health, auto, property, or even life insurance.
Sometimes organizations suffer from financial losses simply due to human errors, either exploited by fraudsters and sometimes not. The critical role of human oversight remains essential in the manual process of financial transactions. Mistakes can occur at various stages, from data entry errors to lack of attention in payment approvals. And these can result in payments being directed to the wrong vendors or transferred to incorrect bank accounts. One form of this is the accidental duplication of payments, where employees inadvertently initiate payments for the same invoice multiple times. Additionally, data entry errors, such as transposing digits in bank account numbers or misplacing decimal points, can lead to funds being sent to unintended recipients.
Artificial intelligence and machine learning algorithms are now used to orchestrate fraudulent activities targeting payment systems, financial transactions, and employees within organizations. AI can be utilized to steal funds or trick employees through various tactics, such as sophisticated phishing attacks that leverage AI-generated content to create deepfakes that impersonate trusted entities. AI can also help hackers evade detection by adapting to traditional security measures. Advanced data analytics and predictive modeling can be used to help fraudsters identify vulnerabilities in payment processes, exploit loopholes in authorization workflows, and orchestrate fraudulent transactions that mimic legitimate behavior.
No company is truly safe from business payment fraud without help from a comprehensive tech solution. And we've seen many examples of B2B payment fraud that has occurred in recent years.
One notable example occurred in 2019, where a man pleaded guilty to swindling Google and Facebook out of $100 million by creating fake companies, emails, and invoices. The details are staggering: with the help of several co-conspirators, the threat actor impersonated a vendor both Google and Facebook work with, and proceeded to forge invoices, contracts, letters and more. The money was wired to the fraudster’s bank account and subsequently laundered through several over bank accounts. In the end, both companies lost tens of millions of dollars over the course of a few years.
But schemes executed by external actors aren’t the only threats to a business. Insider fraud and internal collusion are also attacks that can occur at any time. An example of a surprising case was when a few employees of Amazon managed to steal $10 million from the tech giant over the course of several months. While employed in managerial and loss prevention roles at an Amazon warehouse in Georgia, the primary threat actors executed a scheme where they created numerous fake vendors and submitted fraudulent invoices for payment. The co-conspirators were eventually caught and some of the money was recovered from their plot.
But these attacks can also come from a combination of both internal and external threat actors and with massive consequences on a whole other scale. In one case a group of hackers were able to transfer close to $1 billion from the Federal Reserve of New York account belonging to Bangladesh Bank. The threat actors gained access to Bangladesh Bank's, watched how their payments and fund transfers were conducted, and then were able to gain access to make payment transfers by issuing instructions via the SWIFT network. Here there were many threat actors involved. It's suspected that there were internal employees that aided the plot in addition to the external fraudsters that compromised the systems. Also, after thorough investigation, the FBI suspected that the government of North Korea was backing the hackers that ran the scheme.
Why Are Businesses Vulnerable to Business Payment Fraud?
There are many more examples of incidents where business funds have been diverted through attacks on payment processes and fund transfer practices at companies. And these attacks lead to massive amounts of financial losses. Fraudsters are emboldened and getting smarter and more sophisticated as each year passes. The development of new generative AI technologies like ChatGPT, deep fake, and voice cloning (among others) is arming threat actors with more tools to execute their schemes in real-time and at scale.
Digital innovation has swept through the business world and fundamentally altered the landscape of payment management. Nowadays, payments have undergone a profound transformation, with the vast majority being digitized. This shift has given rise to a myriad of payment platforms, each serving as a piece in the intricate puzzle of modern financial transactions. As a result, managing payments has become a multifaceted endeavor, involving a complex web of verification processes, security protocols, and integration efforts. This sprawling complexity is exacerbated by the number of payment rails that have come to market as well as the proliferation of new technologies that enable real-time payments. With more ways to transfer money to vendors, more vulnerabilities in the process come to light.
There’s a lack of visibility in the payment process so approvals often happen without verification.
Large enterprises can have hundreds of thousands of vendors with millions of invoices being processed each year.
This is a lot of work for finance teams and individuals responsible for approvals, and there is a lack of time and resources to check every step
There are multiple siloed systems in a payment approval process and complicated workflows that can suffer from human errors
Often times verifying vendors and their information can be difficult to manage or even impossible.
With all these challenges in the payment process, it’s no surprise that businesses can fall prey to attacks by fraudsters and threat actors.
To effectively combat the growing menace of business payment fraud, companies need to adopt advanced technology solutions, like Trustmi's comprehensive platform. Trustmi's state-of-the-art technology takes a holistic approach to securing business payments, protecting the entire payment process from start to finish. The key strength of Trustmi lies in the platform’s ability to seamlessly connect into existing systems and analyze data across every step of the payment cycle. This deep integration enables the platform to detect and prevent fraudulent attacks and also rectify inadvertent errors that could lead to financial losses.
Trustmi is a flexible and modular solution that provides finance and security teams the ability to choose and deploy specific tools tailored to their unique payment processes and vendor management needs without disrupting their approval workflow. Our platform streamlines operations and reduces the time and effort typically devoted to the payment process. And with our solution, businesses can respond effectively to the ever-changing landscape of fraud threats on their payments.
Moreover, Trustmi's innovative Trust Network harnesses the power of collective intelligence. This unique network aggregates crowd-sourced data from a vast ecosystem of vendors and businesses, pooling thousands of data points to defend against future threats. By continually collecting and analyzing this wealth of information, Trustmi empowers organizations with real-time insights and collective wisdom, enhancing protection for upcoming payment transactions.
In today's dynamic financial landscape, where fraudsters are becoming more sophisticated, Trustmi's technological expertise offers a comprehensive and proactive solution to secure the payment process and protect the bottom line of businesses everywhere.
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