The Link Between Electronic Payments and Fraud Reduction


The Association for Financial Professionals uncovered an interesting correlation in its most recent AFP Payments Fraud and Control Survey series: a drop in payment fraud last year coincided with electronic payment methods as well as other fraud mitigation strategies, such as automated invoice management.

Not that fraudsters have stopped targeting business-to-business payment fraud, according to the survey. It found that 61 percent of the financial professionals responding to the survey experienced such fraud or attempted fraud last year. However – and this is key – that figure is 12 percentage points lower than in 2009.

In the interim, companies have been stepping up deployment and implementation of automated invoice management. The survey found, for instance, that 84 percent of companies posted a drop in paper payments while increasing electronic payments.

What It Takes

Implementing electronic payments for a company can be an investment, requiring at a bare minimum a robust ERP and general accounting system. From there, the deployment and integration requirements grow, especially as companies expand their payment capabilities with other partners.

A survey by GXS found that 96 percent of respondents plan to increase the number of customers they trade with electronically, the number of suppliers they trade with electronically, and the number of business processes they support. In addition, 59 percent of participants plan to expand their use of B2B e-commerce in all three areas.

The GXS survey honed in on managed service as a solution to this complexity: It found that 96 percent of respondents felt managed services has added significant value to their overall B2B integration programs, with cost savings as a key benefit.

Other Recommended Steps

But there are other steps companies can take to maximize their electronic payment systems and general IT systems to prevent fraud. The AFP survey found, for example, that performing daily reconciliations (76 percent) and reviewing and strengthening internal procedures (68 percent) were key steps as well. And these are hardly the only tools and processes available. A separate survey, CyberSource’s 13th annual online fraud survey, found that to manage online fraud, merchants are using an average of 4.9 fraud detection tools, with larger merchants using an average of 8 tools.

One of the most important things to have, however, is automated invoicing ability that gives the company a top-to-bottom view of all transactions, with maximum searchability and intuitive use. Fraudsters depend on your inability to easily detect what they’re doing.

The Problem with Checks and Manual Processes

One sticking point, though, may be companies’ ongoing love affair with paper checks. According to the AFP survey, checks are still ubiquitous in the corporate world. Here too, though, fraud detection and control procedures can go far in preventing theft. CFO Magazine, which reported on the AFP survey, told of a common – and low-tech – prevention tool: positive pay. This is an internal control in which the company’s bank pays only the checks the company’s finance department preauthorizes.

Indeed, it appears that low-tech tools will continue to be a staple in the fight against payment fraud for some time, even as more companies shift to electronic methodologies. The CyberSource survey also found that 75 percent of merchants surveyed conducted manual reviews of their orders, with slightly over one out of every four orders being manually reviewed. “Although order volumes have increased significantly over the years, manual review rates remain fairly steady, implying that merchants are manually reviewing far more orders today,” according to the report.

Unfortunately, with 75 percent of manually reviewed orders ultimately accepted, these merchants are incurring significant expense to review legitimate orders, the report concluded.

There is, after all, a reason why companies see the value in automating processes such as payment and work order management – reasons that are far more basic than preventing fraud. Efficiency, for instance.