The fraud playbook is evolving. The rapid rise of digitalisation over the past two years has exposed weaknesses for scammers to exploit. Incredibly, 98% of business-to-business (B2B) firms suffered at least one attack in 2021, losing 3.5% of their annual revenue on average. While the financial losses are irritating, it’s nothing compared to the stress and anxiety that fraud evokes, not to mention the operational costs for businesses to investigate and resolve these cases.
Over 2023, I predict that successful companies will be able to shield themselves from payment fraud – in part, thanks to digital trade credit services. Those that fail to adopt digital solutions could lose both revenue and opportunities.
1 | Scammers will continue to target the B2B market
During the pandemic, many scammers were drawn to government support packages. Rather than having to go through the process of embezzling funds and reselling goods on the black market, they simply stole money directly. More than £1.1 billion of UK COVID small business loans were swindled by fraudsters.
However, as these schemes dried up, scammers returned to their old hunting grounds, armed with a wealth of new tools and digital experience. The B2B payments space is worth $125 trillion, four times that of B2C payments. This makes B2B an attractive proposition for con artists. Reinforced with fake businesses, financials, domain names and convincing stories, in 2023, they will hit merchants and buyers from all angles. To avoid getting scammed, merchants will need to be prepared.
2 | Impersonation fraud will be an ongoing challenge for B2Bs
Impersonation fraud – including scammers who pretend to work for a company to buy goods on credit terms – will continue to plague merchants in 2023.
One of the most common types is when fraudsters create a forged business digital identity, for example by creating an email domain which is similar to a business’ legitimate website. If the company is called Johnson.com, the scammer might set up a domain called Johnson.co.uk, Jonson.com or Jonsohn.com. From here, they place orders with unsuspecting employees, especially in larger companies, then scarper before the time to pay comes around. This type of fraud, known as Business Email Compromise, cost companies $2.4 billion in 2021, accounting for over a third of cybercrime losses.
Other types of fraud will be prevalent too. For example, scammers can set up an online company in a few moments, access small lines of credit and let the business die without ever paying it back. More organised groups will create companies, submit false financials over several years and take out large orders without ever paying the merchant.
In its 2022-2023 corporate plan, Companies House included provisions to tackle this type of fraud. The organisation plans to, “[…] verify identities of those registering and entering data, and to query the accuracy of the data, and when appropriate, take action to improve its accuracy through annotation or deletion”. These long-awaited regulatory changes on company registration could help disrupt fraudsters, bringing back some power to genuine merchants and SMEs.
3 | Digital trade credit can shield B2Bs from invoice and payment fraud
B2B buyers can also be victims of fraud. A top tactic employed by scammers is to sen altered or fake invoices to buyers with their own bank details, known as Invoice Fraud.
In 2021, 71% of businesses cited reducing payment fraud as a top priority. Invoice fraud is especially concerning. Among small businesses, a painful 55% of all money lost to scammers happens in this way. The UK’s small businesses lose an average of £2,100 from invoice fraud, and the amount being stolen is going up by 13% each year. The anxiety of being scammed can be exhausting too, especially for businesses that are already feeling economic stress.
One way to shield against invoice and payment fraud is to use a digital middleman at the checkout. Services like digital trade credit offer several advantages for B2B buyers and merchants, including carrying all the payment risks. Once a credit provider approves a buyer and lends the money, the merchant can relax. The buyer can also breathe a sigh of relief, knowing they’ve paid the correct amount to the right organisation.
Even if the buyer turns out to be a con artist, merchants will still receive their payment in full, with no later repercussions. This can help to boost confidence and growth, as well as eliminate risk and stress.
4 | Without digital solutions, B2Bs risk stagnation
The rising tide of fraud is seriously slowing down growth. Not only are business owners a lot more cautious, but many are actively turning away buyers. 47% of firms today choose not to onboard new clients due to fraud, or fears of fraud. Retailers are among the most likely to do this, with 54% rejecting new customers.
Trying to avoid fraud can be a full-time job. It takes time and resources; things business owners find it harder to afford as they battle the cost-of-living crisis.
Interestingly, by simply adding a BNPL option at the digital checkout, merchants can significantly shield themselves from fraud. By outsourcing the risk to a third party for a tiny fraction of the retail price, merchants have the freedom to thrive. They save stress and money to focus on what matters most: growing their business.
5 | Humans and technology will work together to beat fraudsters
Fraudsters are excellent at manipulating emotions. They play on different pressures like urgency and workplace hierarchy to hoodwink their victims. However, technology does not play by the same rules. I predict that over 2023, humans and technology will work together much more efficiently to create a hybrid sphere of protection.
71% of the businesses implementing better technology today do it to protect themselves against fraud. While all areas of fraud matter, three-quarters of these companies listed fraud detection as either an important or the most important priority. Deciphering who is and is not a genuine customer has never been so important.
As data-sharing schemes like CIFAS continue to grow, organisations and individuals can share knowledge on fraud. As we build up a fuller picture of what’s going on, we can better protect people. However, at the time of writing, less than half of professionals share this kind of information with each other. To turn the tide on fraud, humans must work together and use technology.
It’s too much for B2Bs to carry on their own
In this article, I’ve only scratched the surface on the stress that fraud causes B2B merchants. In an already-stretched climate, it’s not fair for businesses to try to tackle this extra headache on their own.
For 2023, financial technology and regulation technology must work together with B2Bs to make fraud less prevalent. For the firms that embrace these measures, there will be many benefits. But for those businesses that don’t, they could stagnate, lose customers and find themselves unable to catch up.
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