Newton’s Law of Motion and Fintech: The Strange Synergy

How fintech innovation sparks payment fraud adaptation

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Ron Jaradat author pictureAuthor: Ron Jaradat

A peculiar payments predicament

The gradual progress of payments technology within the retail sector has left corporate payments stagnant and grasping for change. Within retail, the voraciousness of consumerism has led to the proliferation of demands like seamless mobility, cashless transactions, zero-count fees, and instant payment processing. Fintech megaliths can’t turn a blind eye to the consumer market segment, so they shift their R&D budgets to meet their expectations, knowing they can make a pretty penny from appeasing the segment. With online shopping cannibalizing most other forms of retail and commerce, it is clear why that shift has gained traction. Shoppers can now browse items, purchase clothes, groceries, furniture, etc. and make an instantaneous purchase from their pajamas. B2C-focused advents like digital payments and instant payments are tangible progressions and further widen the disparity between the sectors.

What has this meant for corporate payments – which seem to have fallen by the wayside in terms of technological innovations?

The lack of instantaneous payment processing has hamstrung corporate payments by ensuring lengthy transaction times, invoice data errors, delays on shipped goods, sketchy supplier verification tools, payment security risk, and much more.

Treasurers are beckoned to maintain maximum intercompany transparency, ample liquidity for daily operations, and execute yearly financial forecasts while dealing with the inveterate stagnation within corporate payment technology. As the symbolic heroes that Gotham needs, innovations are beginning to sprout like Swift gpi for corporates and Ripple, which are the corporate response to consumer-oriented services like instant payments and consumer-to-consumer cash apps.

As the world economy shrinks, the habitual payment processing inefficiencies seem to be shrinking with it.

A weirdly-Newtonian approach to treasury

Regarding financial technology, we now arrive at our analogical nod to Newton’s third law of motion: for every action, there is an equal and opposite reaction.

In this case, every positive fintech innovation seems to be the catalyst for a new iteration of cyber fraud or security threat.

The timeless joust between innovation and the hurdles that follow suit remains an intriguing construct to analyze. Consequently, the burden lies on finance and treasury specialists to integrate a combination of technology and workflows to traverse those murky waters.

Fintech innovation manifests → Evolved payment fraud as the equal and opposite reaction.

Payment security should be an area of focus for every finance department but often garners a set-it-and-forget-it approach. As processes evolve, departments experience turnover and automation transitions from a buzzword to practical utility, payment security starts to be a hefty project not executable for a small treasury or finance team.

Cracks and crevices begin to fester, and the past has shown us that splintered corporations are mouthwatering prospects for potential fraud. Treasurers are often too preoccupied with daily tasks to be able to carve out enough time to take a holistic view to assess the bare-bones structure of their payment processes. The metaphorical monster under the bed for treasurers can materialize in many ways like invoice fraud, duplicate payments, and false supplier invoices.

*Cue ominously-spooky music*

Payment process analysis

Where does fraud typically occur in the corporate payments lifecycle?

Regarding payment security, vulnerabilities materialize in crucial points in a payment lifecycle:

  • Payment Approval
  • Payment Monitoring
  • Payment Transmission

Approving payments is a process that has stood the test of time. In the sense that despite a bevy of tools and technology to maximize efficiency, it is one step in the payment process where automation can have some hurdles. To streamline and secure this step, the answer is a centralized platform where all subsidiaries and users approve payments, with the availability for secure mobile connectivity with an embedded function to verify suppliers. Fraudulent invoice scams are prevalent in this step as employees are falsely-swayed into altering payment information for a trusted supplier.

Two-factor authentication with multiple approval levels – if desired – can be embedded to ensure that your payments are going to the right beneficiary.

Users also have the option of implementing internal black/whitelists, which come in handy in regard to excluding known fraudulent beneficiaries.

Payment monitoring requires company-wide visibility of all integrations, banks, and accounts, and a corresponding means to track incoming and outgoing payments from all subsidiaries. 

With a centralized platform to view all payments, beneficiary information is easily accessible. This helps prevent duplicate payments, supplier-fraud and internal employees from trying to execute payments that fly under the radar (in some companies, payments under certain amount thresholds do not require third-party approval). Overall, a centralized platform helps ensure payment monitoring remains efficient and secure and allows access to payment status, supplier identities, invoice data, etc.

In January 2017, SWIFT introduced the gpi Service that can be used to process global payments in a fast and traceable manner. The objective is for every one of the around 10,000 SWIFT Network banks to be able to offer money transfers within 24 hours with continuous end-to-end tracking and complete transparency along the entire payment chain by the end of 2020. This transparency and efficiency is made possible by using a specific gpi reference, the Unique End-to-End Transaction Reference (UETR).

Payment transmission is the last bastion of the payment process. Ensuring the execution of payables and receivables is the lifeblood of the entire group, and having a centralized platform to facilitate that process ensures the entire payment lifecycle is a smooth process.

The battle between treasury fortification and margaritas

The integration of automation bears boundless positive utility for B2B corporate payments processing. As history has shown us, the boundless nature of innovation opens the door for data breaches and fraudulent attacks. High-scale payment scams on large corporations remain the magnum opus for cyber hackers. The onus is on treasurers to not let splinter cell hackers sprawl out on sun-soaked beaches, sipping expensive margaritas with tiny straw hats, enjoying an early retirement at your company’s expense. It is imperative to fortify your treasury with a centralized platform that will excel in automation while providing visibility and alert functionality to prevent fraud.

Sorry Newton, we see your trickery

*cue triumphant trumpet fanfare*

BELLIN’s award-winning treasury management system, tm5, not only excels in optimizing treasury tasks but comes with the bells-and-whistles of intuitive security integrations. tm5 users benefit from a multi-banking portal that allows for company-wide visibility of cashflows. Multiple logins, instability of physical tokens, redundant dashboards and varied payment formats are ancestral challenges when you use tm5.

As you see below, BELLIN provides a host of functions that provide security checkpoints between the payment origin and the beneficiary. With two-factor authentication, mobile connectivity and approvals, and straight-through processing, payment lifecycles are fortified.

payment lifecycle inline image

 

tm5 makes use of different local communication channels (e.g. EBICS, FTX, and MBS), individual connectivity to banking servers (host-to-host) as well as a SWIFT SCORE network connection allowing you to collect statements and process payments via your own corporate BIC. Regardless of the connectivity channel or format, tm5 takes the indecision out of the equation. The holistic solution that tm5 provides is a flexible platform that provides uncapped control and maximum transparency.

Conclusion

While Newtonian scientific constructs never explicitly pointed toward treasury and payment fraud, such constructs have a way of materializing in everyday life. The habitual seesaw nature of payment fraud provides us with a way to take a more preemptive approach. We know it is just as vital to consistently scope our solutions from the perspective of a fraudster. “Where are the potential cracks and crevices and how can we fortify them?” If we continue to adapt our technology by thinking a step ahead, we effectively carve a path for the treasurers and providers to follow suit. Newton’s law remains briskly attuned to our industry and appears to be an unsolvable riddle for many companies. We may not have cracked the riddle in our industry but we figured out its cyclical nature.

Would you like to learn more about BELLIN’s payments solutions? Just reach out to us for a tm5 demo, or visit our main tm5 page.

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