UK SMEs need technology change to combat rising tide of payments fraud

Cultural and technological changes are needed to reverse the impact of fraud on UK businesses, as a quarter of SME employees fail to double-check their payments or report problems to authorities, according to market participants and industry bodies.

“One of the main reasons that payments fraud continues to be so commonplace is that it is a lucrative area … but is also relatively low risk for fraudsters, with funds often difficult to trace,” says David Divitt, vice president of financial crime product management at Vocalink. “We need to see both a cultural change and a technological change. It’s undeniable that technology needs to be leveraged to deal with the complexities of fraud.

According to a Vocalink survey released this week, 73% of UK businesses believe that fraudsters who carry out payments fraud are now “ahead of the industry”. It found that while 22% reported someone had previously attempted payments fraud on their business – and that 12% had fallen victim to scams – just 32% were tightening their security processes. More than half (53%) said that the biggest barrier to protecting their business against fraud is not knowing enough about how fraudsters are able to attack.

“This report shows the devastating effect that fraud is having on UK businesses,” wrote Katy Worobec, managing director of economic crime at trade association UK Finance, in a statement accompanying the Vocalink survey. “With criminals becoming ever more inventive when it comes to scamming money from companies, it’s imperative the financial services sector continues to work together to prevent existing and emerging types of fraud.”

The UK’s Financial Conduct Authority (FCA) issued new rules in December to allow victims of authorised push payment (APP) fraud to complain to their payment services provider, in reaction to data which shows that businesses and victims lost £236m to APP fraud in 2017.

Barclays data from April last year estimated that fraud has resulted in 50,000 job losses at UK-based SMEs, while the average cost of fraud to each firm is around £35,000. In two-thirds of cases, the bank adds, the business has had to cover the fraud costs themselves. A rise in “sophisticated” fraud is blamed for the increase, as well as SME reluctance to report fraud to the police.

A second report from Barclays, released this month, highlights that 14% of SMEs have fallen victim to an invoice scam in the past 12 months. It also found that a quarter of employees processing invoices for their firms double-check with a colleague before making a payment, and 24% were scammed because they trusted a fake email address.

“People and businesses need to be warier and more become more adept at spotting risks,” says Divitt. “Wily fraudsters continually finding increasingly sophisticated ways to trick their victims. While we work to reduce fraud in one area, we often see that it moves around and rises in another area.

“As with all new things, fraudsters will try to find a way to exploit new systems or mandates,” adds Divitt. “That’s why governments, regulators, the industry and businesses all need to be wary of likely instances of fraud when designing the new systems and processes, or when thinking about new security checks to put into place.”

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