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Matthew Dragiff

Matthew Dragiff - SunGard AvantGard Payment Services

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Payments strategies 2015-2020-2030

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Payments Fraud Remains High

01 June 2012  |  2244 views  |  0

The eighth annual AFP Payments Fraud and Control Survey report was released in March. This valuable survey, underwritten by J.P.Morgan, provides information and trend analysis of payments fraud.  The 2012 survey shows that, for the fifth consecutive year, two-thirds of responding were victims of actual or attempted fraud.  Following are some of the highlights from the report that stood out to me and support the importance of migrating from checks to electronic payments.  The entire report may be downloaded here

According to the report, large organizations were significantly more likely to have experienced payments fraud than were smaller ones.  81% of organizations with revenues over $1 billion were victims of payments fraud in 2011 compared with 55% of organizations with annual revenues under $1 billion.  One could assume the reason is that more larger organizations have more outgoing payments and thus more payments subject to fraud.

The report also states that 28% of survey respondents reported that incidents of fraud increased in 2011 compared with 2010.  Checks remain the primary target, with 85% of affected organizations reporting that their checks had been targeted.  The percentages of organizations affected by payments fraud via other payment methods were:

  • ACH debit (23%)
  • Corporate/commercial cards (20%)
  • Consumer credit/debit cards (12%)
  • ACH credits (5%)
  • Wire Transfers (5%)

On a more positive note, 74% of organizations that were victims of actual and/or attempted payments fraud in 2011 experienced no financial loss from payments fraud according to the report.  It also states that among those organizations that did suffer a financial loss resulting from payments fraud in 2011, the typical loss was $19,200.

Check Fraud

Criminals still target checks more than other types of payments.  According to the report, eighty-five percent of organizations that experienced attempted or actual payment fraud in 2011 were victims of check fraud.  That is all the more reason to migrate to electronic payments. 

ACH Fraud

ACH Fraud is not as common.  According to the report, among organizations that were victims of attempted and/or actual ACH fraud in 2011, the typical organization was subject to four ACH fraud attempts during the year.  Only 17 percent of organizations that were subject to at least one ACH fraud attempt in 2011 suffered a financial loss as a result.  ACH fraud occurs typically because of non-timely account reconciliation or ACH return, lack of ACH debit blocks or filters, or lack of use of ACH positive pay.

Card Fraud

According to the report, eighty-seven percent of the respondents indicate that their organizations use corporate / commercial cards for business to business (B2B) payments.  Payments fraud does occur with card payments and the highest amount of card payment fraud (75%) occurred with purchasing cards.  The percentage breakdown of respondents who experienced payments fraud with various cards include:

  • Purchasing cards 75%
  • T&E cards 38%
  • “One card” combining many uses  26%
  • Ghost or virtual cards 23%
  • Fleet Cards 15%
  • Airline travel cards (UATP) 2%

The report also states that typically, the card payment fraud that was reported was committed by an outside party (65%). Only 16% reported that the fraud was committed by a known third-party such as a vendor, professional services provider or business trading partner.  However, a significant amount of such fraud was committed by an organization’s own employees (38% or respondents).

In summary, checks continue to be widely used and abused, and fraud by check payments remains the overwhelming threat faced by companies.  Corporates recognize this and many organizations are simply moving away from checks.  They recognize that most of the float has been squeezed out of the check clearing process, making it more cost effective to focus on other benefits from electronic payments – liquidity visibility, greater automation and cost savings, revenue from rebates as well as the fraud control benefits.

Companies like to use ACH because the processing cost is typically less than that for checks and wires and is also much easier to control via debit filters, debit blocks, and dedicated accounts.  Card networks are more secure than checks, but card fraud attempts vary depending on the type of card program.  The use of virtual cards, with the characteristics of single use, exact dollar amount and short time-to-live does provide a secure alternative for B2B payments.

How do these statistics align with your experience?  I’d like to hear from you.

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Matthew Dragiff

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Vice President Product Management

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SunGard AvantGard Payment Services

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