Digitize to Optimize – Part 2: A three part look at B2B payments digitization – risk & fraud protection
“Keeping the risk management plan up to date can transform it from a door stop into a vital project management tool. Remember: what you don’t know can kill your project.”
It doesn’t take a rocket scientist to understand that without holistic, real-time visibility into the entire payments process, the potential for risk and fraud are exponential. Ironically enough, the above quote comes from a rocket scientist, Bruce Pittman.
That line, “What you don’t know can kill your project,” has broad applications if you substitute the word “project” with “cash management,” “working capital,” “balance sheet,” etc. You get the idea.
In part one of this three-part series on digitizing payments, we looked at how payments digitization is enabling financial teams and leaders to be more agile through better control and management of the payments process, and its impact on decision making and the wider organization.
In Part Two, we’ll continue exploring the stats and analysis presented in the report by PYMNTS.com and Corcentric, Business Payments Digitization: How Financial And Healthcare CFOs Build Healthier Balance Sheets. By more fully understanding the drivers and objectives behind companies embracing payments digitization, you’ll see how the effort also aids in risk management and fraud prevention.
Payments digitization mitigates risk
Risk infiltrates and grows where you can’t see it. Like fraud, it thrives on invisibility, seeking out those between-the-cracks areas in your payments and financial workflows. Outdated manual payments practices are rife with opportunities for risk to establish a foothold. Conversely, digitizing payments creates a real-time, 360° view across the payments process, putting critical information on display and allowing for both decision-making confidence and more effective incident management. It is one of the results achieved at larger companies that are moving further up the B2B payments capabilities maturity curve.
What’s the digitized payments situation now — This factoid from Forbes.com1 says it all: In 2018, paper checks represented 47% of B2B payments, ACH payments were at 34%, and wire transfers were at 14%. Card payments were last in line, with no measurement available on how many of them were made digitally. Granted, the global pandemic has most likely improved these statistics, but you can see how much needs to be done for payments digitization to become a universally embedded risk management tool.
What leading CFOs are doing — According to the PYMNTS.com survey, 94% of finance and insurance companies (by far the most advanced of all the industries included in the survey) implemented fraud detection systems when they digitized their payments processes and are relying on advanced technologies to stop fraud. These include data mining, deep learning and neural networks, and rules-based algorithms.
Why it matters to you — You can’t manage what you can’t see. Risk management requires robust risk monitoring — i.e., visibility — to assess threats accurately and proactively in order to ensure mitigation strategies that minimize the impact on the company – not to mention its customers, suppliers, and reputation. If, post-pandemic, your organization remains all or mostly a remote workforce, then without digitization how much visibility into all the payments stages will you have?
Show me the money
Fraud and risk love the gray areas that exist when companies have siloed processes and functions. Breaking down those silos is primarily a cultural shift, but digital transformation integrates data and systems from across the organization, effectively reducing the siloed processes surrounding it. Since purchasing and payments are two of the most common areas where fraud surfaces, and they happen to be the bookends of the procure-to-pay (P2P) continuum, digitizing payments puts a powerful spotlight on monitoring potential risk upstream and downstream.
While the PYMNTS.com survey included a range of industries, financial/insurance and healthcare/medical firms are notably ahead in their implementation, or intention, of payments digitization. This plays out most dramatically in the fact that 80% – 94% of the responding CFOs in these two industries state that digitization improved their data security, while 58% – 83% report that it has improved their companies’ ability to minimize payments fraud.
Why? Visibility. A fully mature B2B payments process on a digitized platform is like a big payments monitoring tool with a detailed data trail that provides a greatly expanded understanding because the data includes much more than just the payments. As mentioned earlier, those insights can power better decision making, faster and easier reporting and record-keeping, and create a streamlined path to more collaboration (and automation) with associated functions.
Digitized payments: what have you got to lose?
Risk and fraud are expensive. What do they cost companies? According to audit, tax, advisory, and risk firm Crowe, fraud costs businesses and individuals globally over $5 trillion each year2. Granted, not all of that is payments fraud, but how much are you willing to risk?
Remember that quote up top about keeping your risk management effort current so it transforms from a door stop into a project management tool? Risk, including internal and external fraud risk, is not a static thing. In the same way your contracts aren’t meant to be signed, filed, and forgotten, a digital payments process can be wielded continuously, providing a dynamic risk radar to identify potential issues, and maybe help prevent financial and reputational meltdown.
Learn more by reading part three of this series where we look at how payments digitization can play a role in your customer and supplier relationship management efforts.
To find out how Corcentric can help you leverage payments digitization to mitigate risk and fraud, don’t hesitate to contact us.
1 Forbes.com, Digital B2B Payments Show Promise But Still Face Hurdles To Widespread Use, June 2021.
2 Crowe.com, Fraud costs the global economy over US$5 trillion, July 2019.