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AI is the only way to battle fraud

(Image credit: Image Credit: Gustavo Frazao / Shutterstock)

Fraudsters are constantly working hard to become more sophisticated.

This unfortunate truth applies across B2B digital commerce, a $5.6 trillion industry on track to nearly quadruple by 2027.

It doesn’t matter whether your company buys or sells on international B2B marketplaces or sources and supplies via niche alternatives that specialize in one industry - fraud happens every day to even the savviest of businesses.

The same applies to organizations that gravitate towards direct trading relationships. In this case, it’s easy to believe that cutting out the middleman provides greater protection from fraudulent activity.

A closed loop, if you will.

I’m afraid not.

In reality, fraudsters in all their forms are becoming increasingly effective at what they do. This is because they are using the latest technology to overcome even the most advanced anti-fraud measures.

For every RegTech innovation - and trust me, there are lots at the moment (RegTech is a market that could grow to $21 billion globally by 2027) - there’s a counterpart in the hands of a fraudster hoping to produce an illegal outcome.

This could be a foreign supplier, primed to vanish into thin air without warning, leaving your supply chain vulnerable. Perhaps it’s falling foul of company directors who love nothing more than spinning up new companies as vehicles for accounting abuse.

Maybe, just maybe, it’s the age-old trick of counterfeiting and you have purchased some through an online marketplace where you were none the wiser.

Whatever the malicious instigator, honest companies end up paying for this activity.

Online payment fraud is predicted to cost businesses $200billion over the next five years. Other research has found that 49 percent of global organizations have been a victim of economic crime. The sums are staggering.

Fraudsters are coordinated, getting smarter and show no sign of letting up.

What can businesses do?

Learning from the worst

Well, if you can’t beat them, join them.

No, I don’t mean spinning up a counterfeiting ring to play devil’s advocate with your own freedom or trying to defraud the fraudster through your own zombie company.

Keep it legal. Embrace data science, artificial intelligence (AI) and machine learning so you become smarter than them.

Identify the risks, close the gaps and go on the offensive. Don’t wait to become a victim. Take proactive steps and use the power of RegTech to shore up compliance, strengthen supply chains and bolster due diligence.

After all, one of the biggest enablers of any fraudster is when a company gets complacent about due diligence.

These barriers may occur within your supplier onboarding process or your procurement team overly trusts the credible marketplaces they use every day.

Now more than ever those responsible for due diligence are stretched beyond capacity, yet these heroes still have to keep business flowing at a relentless pace. These pressures have only been intensified by Covid-19 and sadly this offers ample cover for fraudsters to operate within supply chains.

Human analysis and attention-to-detail can no longer maintain order across a global supply chain. There are simply too many suppliers, logistics networks, payment systems, digital solutions and distractions to monitor every trading relationship around the clock.

Even if your business has a lengthy and comprehensive due diligence process, its thoroughness is its weakness.

Insight becomes historical data the moment you have reviewed it.

What happens if something were to change the day after you have completed your due diligence? Would you notice? Is the company still trustworthy a week later? A month? A year? When are you next going to assess them?

Technology fighting technology

These questions highlight the massive challenge facing businesses across the world. They also emphasize just how AI-powered solutions are crucial in countering this heady cocktail of risks, vulnerabilities and threats.

AI is there to do the heavy lifting for fraud detection and risk identification, helping to augment humans, integrate and enhance existing RegTech systems, and focus attention on those crucial red flags.

Red flags can come in many shapes and sizes; however, they all point back to one critical question without fail:

Who am I actually trading with and should I be doing business with this company?

Most companies have a process to make that decision. Some rely on basic intuition. Others deep dive into each trading partner’s history, public information and supplied references to approve a business relationship.

Very few go further than this and investigate beyond the obvious. Even fewer use technology, business verification platforms or AI.

One of the main reasons for due diligence apathy (beyond time) is a lack of data. There are thousands of data points in the public and semi-private domain about any company, from their trading address to whether a director is active in another company.

In reality, when analyzed in isolation, this tells you very limited information about the company and people don’t want to spend time doing the digging. So, instead, they revert to asking some questions and trusting the answer.

The answers don’t tell you much.

Or worse, they tell you nothing at all if the information is a lie. Fraudsters tend to be pretty loose with the truth, after all…

Answering the most important question

Actionable insight is far easier to come by when your business has a competent AI-powered due diligence solution embedded into workflows. This helps identify:

  • Whether there are discrepancies in the company’s trading history
  • The risks around solvency, credit rating and other commercial considerations
  • If the company is actually where it says it is?
  • Suspect behavior from the company’s directors
  • Current or past legal action against the company

These fundamentals should be the foundation of any due diligence initiative, compliance drive or anti-fraud strategy. They are critical assessments to building trust long-term.

B2B Digital Commerce is only going to keep on growing. Covid-19 has accelerated online procurement behavior irreversibly but in doing so, the pandemic has also increased the chance of encountering fraud, whether that’s in the form of a previously honorable partner that’s now breaking the law because of desperation or the experienced criminal ring using anonymity, technology and a distracted workforce to inflict harm on your bottom line.

Whatever the cause, your people no longer have to go it alone.

It’s time to recognize that AI is the only way for your business to battle fraud successfully and there are tools out there.

It’s time to get even more sophisticated.

Liam Chennells, Chief Executive Officer, Detected