ADDRESSING THE B2B OPPORTUNITY Fightback: five ways financial institutions can combat payment fraud

Despite digital payments having lower fraud rates and better security than paper payments, 90% of companies forecasted an increase in digital payments fraud in 2024, according to Javelin research.¹

Financial institutions (FIs) often have the onus of combatting fraud. However, it’s possible for FIs to mitigate fraud while maintaining customer satisfaction and cardholder loyalty. With that in mind, here are five ways FIs can work with acquirers, fintechs and payment networks to more effectively fight fraud in the payments ecosystem.

Clive Cornelius and Edward Galvin

Strategy 1: Tear up checks

40% of companies globally still use paper checks, even though they’re the most common instrument in commercial payment fraud, with instances reported by over 60% of organizations.¹

Despite that the number of checks used for payments is decreasing globally, their average dollar value and number of fraud incidents is increasing, which poses a particular problem in the U.S., where they remain popular.¹ Many companies are aware of the fraud risks related to checks but need advice on to how to transition to safer payment methods. Because check use is often a routine task, reminding companies of the benefits of card use can be persuasive.

Countries that are increasingly cashless, such as those in Scandinavia and New Zealand often no longer accept checks. In some of these cases, the focus on cashless payments is government led, while in others, it’s industry led. Whatever the original reason, the outcome is that both public and private sectors are driving payment methods away from checks and paper until they ultimately become a thing of the past.

Strategy 2: Integrate new tech

As fraudsters embrace innovation, FIs and Fintechs can combat their schemes by leveraging new technologies.

For example, Distributed Ledger Technology (DLT) allows data access and validation across multiple data stores, as well as simultaneous transaction recording, sharing and synchronization across a distributed network. And blockchain is a particularly powerful type of DLT for financial institutions, because it records transactions with immutable cryptographic signatures, enabling user anonymity.²

By mutualizing standards, protocols and procedures, blockchain tech applications establish a single source of truth for financial services network participants, enabling swift collaboration and secure data management.² And blockchain is complemented by innovations in machine learning and AI, which operate in real-time to identify suspicious patterns across activities, to increase the speed of fraud detection, and hone security protocols.³

Strategy 3: Set exceptional standards

When commercial card payments are utilized, issuers can partner with acquirers and their merchants to effectively fight fraud by setting strict new standards which redefine their relationship and reassure card users.

Meeting the minimum mandatory requirements for each jurisdiction is a solid first step. In other words, ensuring mandatory compliance with relevant global and regional regulations such as Payment Card Industry Data Security Standard (PCI DSS), Payment Services Directive 2 (PSD2), and General Data Protection Regulation (GDPR)⁴ is table stakes.

But there are ways FIs can make their commitment to security much more robust. For instance, by helping themselves, acquirers, and merchants differentiate by sharing best practices and practical guidelines on fraud management in areas like real-time digital issuance.⁵

Strategy 4: Embrace instant payments

Although there’s some potential of risk with real-time payments for improved business cash-flow and enhanced customer experience, it can be mitigated with fraud prevention mechanisms like Conformation of Payee (CoP) and Verification of Payee (VoP).

In terms of adoption, nations such as India and Brazil are leading the pack and reaping the benefits. In monetary terms, India’s Unified Payment Interface (UPI) total transaction value crossed $1 trillion in 2022, while Brazil’s Pix transactions reached $170 billion in the same period.⁶ Meanwhile, Germany, the UK, and the U.S. have been slow on the uptake in comparison, demonstrating clear growth opportunities.

Strategy 5: Offer virtual cards

As the popularity of digital payments skyrockets, merchants and issuers are also recognizing the mutual anti-fraud benefits of virtual cards.⁷ Exclusively digital, virtual cards are protected from physical loss, unauthorized copying, and theft. And rather than maximizing potential risk exposure by providing the same card number to multiple vendors, virtual credit cards can generate different single-use card numbers for each transaction.

Transaction limits also provide another layer of reassurance, bolstered by real-time fraud monitoring, and instant alerts. No payment method is 100% secure (yet), but it’s evident these multiple benefits make virtual payments more secure than physical cards or checks.

Conclusion

As the popularity of digital payments rises, the associated fraud risk follows suit. And complex global supply chains are perfect playgrounds for digital fraudsters preying on less digitally-aware businesses.

But by working together across the payments ecosystem, FIs, fintechs, acquirers and their merchants can protect themselves and reassure clients – not only fighting fraud collaboratively but also converting security challenges into commercial opportunities.

About the authors

Clive Cornelius

Head of Large & Middle Market, Visa Commercial Solutions, Europe

Edward Galvin

Head of Large & Middle Market Commercial Payments Sales, Visa Commercial Solutions, North America

1. Javelin Advisory Services, Commercial and Enterprise Payments Fraud, 2023
2. Visa, A Comprehensive overview of enterprise blockchain, 2023
3. Visa, AI and Machine Learning now offer more accurate risk scoring, 2023
4. Visa, Keep Your Cardholders Safe, 2024
5. Visa Consulting and Analytics, Instant Digital issuance: Best Practices on Fraud Management, 2022
6. Javelin Advisory Services, Commercial Instant Payments and the Need for Speed, 2023
7. Visa, The Rise and Staying Power of Virtual Cards for B2B Payments, 2021