Payments Fraud Inching Up, Study Finds

Payments fraud affected more than eight out of 10 financial institutions, businesses and other types of organizations in 2018, and large organizations were particularly susceptible, according to new data from the Association for Financial Professionals.

The professional society’s survey of more than 600 treasury and finance professionals found that payments fraud hit 82% of organizations last year, including 87% of organizations with revenue of at least $1 billion. For organizations with less than $1 billion in revenue, the percentage experiencing payments fraud in 2018 fell to 69% from 73% in 2017.

Almost half of the organizations (43%) experienced direct financial losses from payments fraud in 2018, the report said.

“Payments fraud is a persistent problem that is only getting worse despite repeated warnings and educational outreach,” AFP President and CEO Jim Kaitz said. “Treasury and finance professionals need to learn the latest scams and educate themselves — and perhaps more importantly — their work colleagues on how to prevent them.”

The survey, sponsored by J.P. Morgan, also found that check fraud hit 70% of organizations, which was a decrease from 2017.

“Checks continue to be most impacted by fraud; however check fraud continued to decline to its lowest level since AFP began tracking such activity,” the report said.

AFP also reported a “noticeable increase” in fraud around ACH. A third (33%) reported ACH debit fraud in 2018, compared to 28% in 2017. A fifth reported ACH credit fraud in 2018, up from 13% in 2017.

“One-fourth of organizations indicated they have not received any advice from their banks regarding mitigating potential additional risks with same-day ACH operational for both credit and debit transactions,” AFP added.

Compromises of business email also set new records, according to the report. Eight in 10 organizations reported this kind of fraud in 2018, up from 77% in 2017, and more than half (54%) lost money because of it. As a result, more than three-fourths of the organizations in the survey said they were adopting stronger internal controls that prohibit payment initiation based on emails or other less secure messaging systems.

“AFP has noted that, historically, financial losses incurred as a result of payments fraud activity are not extensive. This, however, does not suggest that payments fraud can or should be taken lightly,” the study said. “Nonfinancial impacts of successful payments fraud activity can be crippling. In addition to adversely affecting an organization’s reputation, payments fraud can expose confidential information and require significant clean-up efforts. Investing upfront in training and controls is essential in obstructing fraud activity that can result in significant outlays of money and time.”