AI is Revolutionizing Payments Security

With a constant threat of fraud, it’s past time to harness this technology.

In an era when financial fraud is becoming increasingly sophisticated and prevalent, accounts payable departments find themselves on the front lines of a digital battlefield.

With global losses from fraud schemes reaching a staggering $485.6 billion last year, the severity of financial losses and reputational damage is enough to keep chief financial officers up at night.

AP departments oversee the tracking, approval, and processing of invoice payments to and from suppliers, so it’s up to them to understand the risks of financial fraud and how to identify and prevent potential scams.

Enter AI, a potent ally that, when combined with training and investment, can fortify AP departments and transform fraud detection into an efficient process.

The sheer volume of invoices and data that AP departments process makes it challenging to scrutinize every single detail on every single invoice, especially if the majority of work is being done by human analysts.

Understanding common fraud schemes confronting audit processes is the first stage for CFOs and AP departments. Here are some of the more prevalent schemes:

1. Vendor Impersonation Scams

In these scams, which are among the most common, criminals pose as legitimate vendors, often through phishing emails or fake Web sites, to deceive AP departments into changing payment details to fraudulent accounts.

2. Mischaracterized payments

Here, fraudulent expenses are considered as legitimate business costs. This can be done by employees and external parties to mask unauthorized transactions, making them harder to detect during audits.

3. Duplicate Payments

Suppliers submit duplicate invoices for the same service or product, leading to double payments.

Worryingly, fraudsters are now using AI to enhance the sophistication of their scams. For example, fraudsters are using AI to analyze and manipulate speeches made by CEOs and trusted individuals to convince staff and customers to transfer payments. It’s also being used for data manipulation to subtly alter documents to make it harder for people to identify anomalies.

While AI has played a role in increasing the sophistication of financial fraud, companies are using the same technology for data analysis and pattern detection to help identify suspicious activity.

Historically, detecting fraud has been a reactive process for many businesses, often triggered only after a significant financial loss. Human analysts would then be brought in to sift through payment data to determine what occurred and where.

‘A Massive Relief’

Today, that process simply isn’t feasible. AI-powered fraud detection is an essential part of the solution with its ability to scrutinize millions of invoices and transactions to identify anomalies and fraudulent patterns. This is particularly important with the different formats of payments, from PDFs to email invoices, which produce inconsistencies within datasets.

These AI algorithms can also continuously learn and adapt based on vast amounts of training data and historical patterns of fraudulent behavior, helping them to flag high-risk transactions and anomalies quickly and giving AP teams a chance to respond faster.

By analyzing historical transactional data, these algorithms can establish a baseline of normal behavior. Any deviation from this baseline, such as irregular vendor activities or unusual invoice patterns, can trigger alerts for further investigation.

This approach enables businesses to identify and mitigate fraudulent activities before they escalate, minimizing financial losses and reputational damage. Unlike manual review methods prone to human error and oversight, AI algorithms can scrutinize every transaction with precision and consistency.

The impact on CFOs and AP departments can be huge. Investment in AI-driven fraud prevention has helped Basware protect an estimated $1 million from every $1 billion spent, for example.

Fostering a culture of accountability and ethical conduct within the organization is equally important. By promoting transparency and emphasizing the significance of reporting suspicious activities, businesses can encourage employees to serve as guardians of financial integrity.

Training on data security and implementing effective whistleblower policies will enable personnel to stay vigilant and report potential instances of fraud without hesitation. This holistic approach, combining advanced fraud-detection systems with a culture of ethical behavior, can significantly enhance the security and stability of an organization’s financial landscape.

There should always be a human touch from AP departments. But the hours and financial losses that AI can help save can be a massive relief, and more accurate.

All Hands on Deck

The scale of the issue is enough to get business leaders beyond finance involved. Basware research found that 56% are planning to send their CFOs to a fraud-prevention course this year. Education and training ensure staff is up to date on the latest trends and threats.

Some 70% are planning on ramping up their anti-fraud and financial-crime budgets. Investment is the first step, but it’s crucial that the investment is spent where it can have the greatest return on investment. In this case, AI-powered fraud technologies are where businesses can typically find the best ROI.

Encouragingly, the research found that 62% of CEOs are planning to use AI to fight fraud this year, showing that many CEOs are aligned on the need for AI to root out fraudulent activity.

With a rising tide of fraud, AP teams must bolster their defenses, combining fraud-prevention training and investment, and, crucially, adopting AI-powered solutions. AI’s ability to enhance detection and offer real-time monitoring and predictive analytics greatly improves efficiency and accuracy in dealing with fraud, helping to protect businesses from the next threat.

—Geoff Keating is vice president, product management, at Basware.