Cross-border payments: understand security risks and best practices to combat fraud

By Sophie Proctor

In today’s rapidly evolving global financial landscape, the growth of cross-border transactions has been astronomical. According to the Boston Consulting Group (2020), cross-border payments reached a staggering $156 trillion in 2019, accounting for 20% of global payments revenue. As businesses and individuals continue to expand their reach, the demand for efficient and secure cross-border payment systems has become increasingly crucial. However, the complex nature of these transactions also presents an array of security risks and opportunities for fraud. 

In this article, we’ll delve into the most pressing security concerns in cross-border payments to give you the best practices to keep your business safe from cross-border payment fraud.  

Security Risks in Cross-Border Payments

1. Lack of Standardisation

According to a study by McKinsey & Co. (2018), approximately 80% of cross-border payment processes involve manual intervention, increasing the number of touchpoints as well as the risk of human error and fraud. One of the key challenges in cross-border payments is the lack of standardisation across different jurisdictions. Payment systems vary significantly in terms of their regulatory frameworks, messaging formats, and processing protocols. This fragmented landscape can create vulnerabilities in the payment chain, allowing fraudsters to exploit discrepancies between different systems. The standards set for Canada may vary with China, or Nigeria, so global businesses who engage in multiple countries and currencies could leave themselves at risk.  

2. Inadequate Customer Due Diligence

Customer due diligence (CDD) is a crucial element of any payment system, but it becomes increasingly challenging in the context of cross-border transactions. The varying quality of CDD measures in different countries can lead to inconsistent verification processes and, ultimately, the possibility of fraudulent transactions slipping through the cracks. The United Nations Office on Drugs and Crime (UNODC) estimates that the amount of money laundered globally each year is between 2% and 5% of global GDP, underscoring the dire need for robust CDD practices. It’s imperative to partner with a payments provider that ensures thorough customer due diligence to protect your business. 

3. Cybersecurity Threats

Cybersecurity risks remain a global concern, and cross-border payment systems are by no means exempt from this threat. As transactions travel across multiple systems and networks, their susceptibility to cyberattacks increases. The infamous SWIFT attacks in 2016 highlighted the potential for sophisticated cybercriminals to exploit vulnerabilities in cross-border payment systems, leading to substantial financial losses.

Best Practices for Protecting Against Cross-Border Payment Fraud

1.     Adopt Robust Standards

To address the issue of standardisation, it is essential for financial institutions to adopt robust international payment standards, such as ISO 20022. This messaging standard streamlines payment communication and promotes interoperability among different systems, overall reducing the risk of fraud. 

2.     Implement Enhanced Due Diligence

For effective CDD, financial institutions must implement a risk-based approach, which involves conducting enhanced due diligence for high-risk customers or transactions. This may include verifying the customer’s identity and source of funds, monitoring their transaction patterns, and collaborating with other institutions to share information on potential threats. 

3.     Strengthen Cybersecurity Measures

Cybersecurity must be a top priority for all parties involved in cross-border payments. This entails adopting a multi-layered security approach that incorporates encryption, secure authentication methods, and real-time transaction monitoring. Financial institutions should also regularly review their systems for vulnerabilities and invest in employee training to promote a culture of cybersecurity awareness.

4.     Collaborate with Regulatory Authorities

Financial institutions must work closely with regulatory authorities to ensure compliance with relevant laws and regulations, such as the Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) frameworks. Cooperation with regulatory bodies enables institutions to stay abreast of emerging threats and best practices in payment security.

5.     Leverage Technology

Technological advancements can play a pivotal role in mitigating fraud risks in cross-border payments. Machine learning and artificial intelligence can be utilised to detect anomalous transaction patterns and flag potential fraud in real-time. Additionally, an API that’s part of a cross-border payments platform can streamline and automate processes, reducing manual intervention and human error. By integrating with various systems, an API can provide seamless data exchange, improving the speed, efficiency, and traceability of transactions. Furthermore, a robust API can bolster security measures by offering customizable permission levels, encryption, and secure authentication protocols, ensuring that sensitive information is protected throughout the entire payment process.

How Verto can support you

For a truly secure global payments partner, look no further than Verto. We can support the complexities with sending and receiving funds, whether it be from a local partner, or customer on the other side of the world. We hold the highest international standards for security and compliance to give our customers peace of mind, as well as being regulated by the FCA. You’ll also be sure your money is secure as we safeguard your funds, protect your data, and never compromise on the security of our platform. Connect your business, secure your payments. With Verto.

Next steps 

In conclusion, securing cross-border payments is a multifaceted challenge that must be coupled with a comprehensive and proactive approach. It’s imperative for industry stakeholders to recognise that payment security is not a static goal but an ongoing process that requires continuous evaluation and adaptation to the changing landscape. In addition, fostering a culture of transparency, cooperation, and shared responsibility among all parties involved in cross-border payments is vital to collectively safeguard the global financial system.

By adopting standardised payment protocols, robust due diligence measures, strengthened cybersecurity practices, collaborating with regulatory authorities, and leveraging cutting-edge technology, financial institutions can effectively mitigate the risk of fraud in cross-border transactions. Now is the time to partner with Verto to ensure your business can make safer payments and stay protected from cross-border payment risks. 

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