Zahir Khoja, CEO of Wave.
A rush order comes in, offering a chance to meet an important sales target. Or an invoice arrives that demands urgent attention. Maybe a new supplier reaches out with a deep discount on items you desperately need. These are all common scenarios when you’re running a small business—and they’re also all commonly used methods for fraud and scams.
Fraud in one form or another affected 80% of organizations last year—a 15% increase over 2022. While larger organizations may have dedicated risk management teams to address the issue, small businesses are particularly susceptible targets. In June, for example, a Forbes Advisor poll found “33% of small businesses have been severely impacted by credit card fraud.” Overall, small businesses have had the highest median losses due to fraud, according to the Association of Fraud Examiners’ Occupational Fraud 2022 report.
The shift towards digital channels for almost every kind of business transaction, coupled with advancements in generative artificial intelligence (AI), could make fraud even easier to carry out. Rather than despair, however, I feel more confident than ever that the fight against fraud is one that small businesses can win.
Technology with a human touch is transforming fraud detection.
Criminals may be exploring how AI can help them pull off scams more successfully, but they are in a tight race with industries whose mission is to support and protect small businesses.
With machine learning technologies, for example, it’s possible to create models trained on vast quantities of data to identify individual threat actors and their behaviors. This means financial institutions and others can score online transactions and other activities based on anomalies and other risk indicators. Risk management teams can then act on a small business owner’s behalf to stop fraud earlier and faster, taking the opportunity to provide personalized live support and education when it’s needed most.
Generative AI offers the potential to synthesize the contextual data behind these scores in helpful ways. Humans continue to play a vital role in this process by reviewing activity with high scores and improving the accuracy of fraud detection tools. This builds upon the traditional rules and methods that payment providers and others have long included in their systems. It’s a layered approach that can increase the odds of keeping fraudsters at bay.
The big picture needed to spot fraud is only getting bigger.
You probably didn’t invest in a standalone word processing program and then buy another, siloed spreadsheet product. Instead, you likely opted for a platform that includes both of those tools, as well as email, calendars, storage and more. The benefits of these consolidated products are not limited to productivity and efficiency—consolidated platforms can also provide more contextually relevant data that can help in the fight against fraud.
This is especially important anytime payments are involved. Most platforms that offer payments have a risk operations team that can go beyond analyzing a single payment for possible instances of identity theft or overcharging scams. They can look at a wide range of behaviors happening across the entire platform to determine if an action being taken is legitimate or indicates an intention to commit fraud. At my company, for instance, much of our work to protect our customers is invisible until we reach out to them afterwards.
With a richer data set to draw upon and an approach that blends risk management with supporting and educating customers, fraud becomes a problem we can all solve together.
The resources to drive small business risk awareness are growing.
Last year marked the 20th anniversary of Cybersecurity Awareness month in October, which was initially spearheaded by the Department of Homeland Security and the National Cybersecurity Alliance. Though fraud scams and other cyber threats are ever-evolving and the need to stay educated will never end, small businesses have a wealth of resources to improve their ability to avoid becoming a victim.
Besides reading articles, listening to podcasts or attending events, this month can be an opportune moment to take a step back and discuss best practices with your team. Ask whether they’re verifying customers before moving ahead with a new sale, for example. Train them on fraudsters’ most common tactics, like sending urgent requests, reaching out from a dubious location or sending communications without a logo or other branding details. Have an established process for reaching out to payment processors when you’re dealing with suspicious activity.
The more small businesses understand how fraudsters work, the more effectively they can shield themselves. And with technology becoming a more powerful weapon in the fight against fraud, I believe we’ll be able to manage risk while growing our companies with greater confidence.
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