Faster B2B payments, back-office automation and alternative payments are all advancing rapidly, but these advances are creating new opportunities for fraudsters, so expect the innovation war between legitimate businesses and bad actors to heat up, not cool off.
Taking the long view on fraud for PYMNTS’ “Executive Insights Series – The Next Three Years,” Nithai Barzam, chief operating officer of B2B anti-fraud FinTech nsKnox, laid out an ambitious roadmap for the company, which is innovating to keep pace with digital transformation trends.
“Everybody talks about faster, real-time immediate payments,” Barzam said. “This is great to be able to pay quickly, and definitely great to receive money quickly, but it also opens the door for what’s known as ‘faster fraud’ and closes the window on the time to confirm compliance within anti-money laundering regulations and anti-terror financing regulations.”
That being the case, investments nsKnox will pursue over the next 36 months will be specifically targeted at providing enterprises and banks with technologies that keep watch over automated processes and safeguard the activities of payments firms on their own three-year journeys.
With the B2B payments space growing more complex and in accelerated time, nsKnox intends to focus on “creating more visibility between payers, payees and the banks that serve all of them to protect money against payment fraud.”
Barzam said that by making security harder to beat, “we can help accelerate the transition that enterprises are making into digital payments, definitely from checks, which surprisingly in the U.S. is still significant for B2B payments, but also the adoption of new payment platforms and alternative payment providers.”
See also: The FinTech Risk Management Playbook
The Benefits of Visibility
Observing the migration to accounts payable (AP) and accounts receivable (AR) automation that many companies are undertaking now, Barzam said he understands the business imperative to do so. He also acknowledged that automation, in many cases, leaves a door unlocked for fraud.
With an approving nod to the efficiency and lowering of human error that automation brings, he added that “all the handovers between people and systems and between systems, unfortunately, offers an opportunity for fraudsters to introduce new techniques, malicious software, and credential theft that can interfere within the payment flow or throughout the transaction journey.”
That fact places application programming interfaces (APIs) — especially open APIs — high on the nsKnox list of priorities over the next three years, as these connections can be an access point for sophisticated fraudsters.
“Now that everything is between multiple people, multiple teams, multiple systems, with all these handovers, to make sure you’re secure, you need something external to all this, which is not impacted by any single system or any single individual and prevents a single point of failure,” he said.
Anomaly detection using artificial intelligence (AI) is an area set for more investment and innovation, but in explaining the whys and wherefores, Barzam illustrated how much work this requires. He used remote account validation to make his point.
He said anomaly detection is problematic in account validation as “every new vendor is an exception. You want a deterministic answer: Is this true or not? Is this right or not? But there are some fraud cases that you could identify through use of anomaly detection,” like a vendor that always pays in U.S. dollars suddenly, inexplicably switching to British pounds.
To combat just this kind of scenario, nsKnox introduced its Bank Account Certificate this year, which validates banking information and credentials in transit and at rest in a verifiable way.
“If I’m going to summarize all this,” he said, “it’s to say we need to provide corporations and banks with security that goes beyond signatory rights, that makes sure that there’s more visibility between payers, payees and their banks in a way that when the bank actually processes your transactions, they know they’re processing something valid.”
Read also: Auto Verification of Bank Account Owners Is Key to Sanctions Compliance
Security Investment on the Three-Year Plan
One trend begets another, and so Barzam said he sees it with buy now, pay later (BNPL) alternative credit, which is making major inroads into B2B, as are the security threats attending it.
“I think we’re all familiar as consumers with a lot of alternative payment methods out there that businesses are starting to adopt simply because these providers are starting to offer their services to businesses,” he said. “When we talk about payment security and payment fraud, it’s not going to remain in the realm of the payer-payee and the banks, but also with these alternative payment providers. Our investments will definitely go in this direction as well.”
This is all happening at a time when fraud is increasingly well-organized and financed, with access to the best digital tools money can buy and criminal master coders to run it all. That’s a detour on everyone’s three-year plan, and Barzam has some advice on that front.
“[Fraud rings are] investing heavily in technology and in process, and they operate like businesses,” he said. “They’ll try to figure out what makes sense and what to invest in. That’s why we’re seeing fraud evolving the way it does. It’s going to continue to be a game of chasing one another. My advice would be: Do not become the weakest link. Let the fraudster go to the house that doesn’t have locks on the door and an alarm system.”
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