Editor's Note: Originally published on March 21, 2012, this story was updated on April 19, 2012 with additional reporting.
Instances of business-to-business payments fraud decreased slightly in 2011, according to research conducted by the Association of Financial Professionals and sponsored by J.P. Morgan. But it still remains a legitimate concern for businesses and financial institutions.
The AFP has conducted the survey, which examines the nature and frequency of fraudulent attacks on business-to-business payments, every year since 2005. While two-thirds (66 percent) of the companies that took part in the most recent survey reported being the victims of B2B payments fraud in 2011, that figure is down 7 percentage points from 2009 and is 5 percentage points less than was reported in 2010.
Further, three-quarters of organizations that were subjected to at least one B2B payments fraud attempt in 2011 did not suffer actual losses from fraud. This is largely due to effective fraud detection and controls, according to the Bethesda, Md.-based AFP.
The trends weren’t all positive, however. The 2011 fraud figure is 11 points higher than in 2005 (which reflected activity in 2004), the first year the survey was conducted. And while overall instances of fraud showed a decline, 28 percent of respondents to the current survey did report seeing increased B2B fraud activity in 2011 compared to 2010.
According to the survey, large institutions were significantly more likely to have experienced B2B payments fraud than were smaller organizations. Eighty-one percent of organizations with annual revenues greater than $1 billion were victims of payments fraud in 2011 compared to 55 percent of organizations with annual revenues of less than $1 billion. Meanwhile, organizations that make and receive a vast majority of their payments within the U.S. were more likely than those booking a majority of non-U.S. transactions to have seen an increase in B2B payments fraud during 2011 compared to 2010.
Checks continued to be the dominant payment form targeted by fraudsters, with 85 percent of affected organizations reporting that their checks were targeted. Fourteen percent of organizations that were the victims of at least one attempt of check fraud during 2011 suffered a financial loss resulting from such fraud, the survey revealed.
Among other types of commercial payments fraud in 2011, 23 percent of respondents said they were victims of ACH debit fraud, 20 percent said corporate or commercial cards were the subject of attack, and 12 percent reported consumer credit or debit card fraud. Attacks on wire transfers and on ACH credits each were reported by 5 percent of participants. Among organizations that did suffer a financial loss resulting from B2B payments fraud in 2011, the average loss amount was $19,200.
“As payment options proliferate, so, too, do new twists on fraudsters’ schemes and techniques,” wrote Stephen Markwell, product executive at JPMorgan Chase (New York), in an introduction to the survey results. “Checks continue to lead as the payment type most attacked, even as their use dramatically declines. But as paper gives way to plastic, Internet and mobile payments accelerate, and the globalization of business continues to grow, the need for new security models becomes ever more important.”
Most business-to-business payments fraud attempts involve relatively small amounts of money, according to the AFP survey. For 58 percent of organizations that actually experienced B2B payments fraud in 2011, the potential loss that could have resulted — or the actual resulting loss — from any single incident was less than $25,000. For 30 percent of organizations, the potential loss was between $25,000 and $249,000, while the potential loss was at least $250,000 for only 12 percent of organizations.
Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio