How global traders are turning to fintech to combat fraud

With billions of dollars being processed every day, cross-border trade payments are becoming increasingly complex. Companies must navigate a number of banks, clearing houses and payment processors that impose fees and contribute to possible delays.

Traditionally, cross-border payments are slow, opaque and costly, leading to cash flow problems for businesses. For example, intermediary banks involved in transactions add fees and processing time, making overall transaction costs less transparent to merchants.

As trade expands, so do the risks of fraud. Higher cross-border transaction volumes mean payment systems are more susceptible to fraud, especially in high-risk regions. For example, the Asia-Pacific region has one of the highest fraud rates, with losses from online payment fraud expected to surpass $200 billion by 2024. In Latin America, fraud costs companies up to 19% of annual revenue, highlighting the urgent need to invest in fraud detection in these regions.

Payment security issues

The Global Treasurer’s 2023 report highlights efforts by financial leaders such as Goldman Sachs and JP Morgan to address these inefficiencies. They develop API-based solutions that enable businesses to track payments in real time, reduce costs and streamline cross-border payment processes. A notable example is the recent collaboration between digital trade finance platform ODeX and global operator Hapag-Lloyd, which has partnered with PayPal to offer transparent payment services.

“The integration of PayPal into ODeX provides unprecedented convenience and security for Hapag-Lloyd customers,” said Binay Thoppil, co-founder and chief commercial officer of ODeX, in an email to FreightWaves. “By enabling payments without the need to enter credentials and offering the cheapest card payment rates in the industry, customers can now experience a faster, more cost-effective transaction process.”

ODeX provides automatic invoicing, real-time updates, payment tracking and transparency. Digital payment options and reduced credit card fees ease cash flow concerns by speeding up payment cycles. From their 2023 partnershipHapag-Lloyd has deployed ODeX solutions in Asia, the Middle East, Africa and, most recently, the United States.

Thoppil told FreightWaves that partnering with such integrated solutions is critical to preventing fraud on a global scale. Global trade finance fraud is exacerbated by digitalization, with common tactics including business email compromise (BEC), phishing and account manipulation.

BEC, for example, involves cybercriminals posing as suppliers to divert funds to fraudulent accounts, resulting in significant financial losses. Only in 2022 The Journal of International Money and Finance reported this fraud cost the global economy billions of dollars, with losses from BEC alone exceeding $2 billion worldwide.

Fintech solutions now use fraud detection algorithms to identify patterns that indicate fraudulent activity, Toppil said.

“(Patterns such as) suspicious login times, unusual payment destinations, high-frequency transaction patterns, and mismatched IP addresses due to normal user activity,” Thoppil explained. “Machine learning algorithms use these patterns to identify potential fraud in real time, blocking suspicious transactions or requiring additional verification before allowing them to continue. For example, if a user typically transacts from the US and suddenly initiates a payment of a large amount from an unknown foreign IP address, the ODeX system will detect this as anomalous behavior, triggering an alert or verification process to prevent possible fraud.”

With the rise of cyber threats targeting merchant payment platforms, remote working and online transactions increase vulnerability to attacks such as ransomware and phishing. Misinvoicing, in which companies falsify invoice values to evade taxes or launder money, remains one of the most serious problems, according to financial think tank Global Financial Integrity. threatsresulting in significant revenue losses worldwide.

To combat these threats, companies have implemented multi-layered security measures, including encryption, two-factor authentication and regular system checks. Encryption protects sensitive transaction data, and two-factor authentication adds an additional layer of security by requiring users to verify their identity. Additional regulatory requirements, such as Know Your Customer (KYC) standards, ensure compliance and reduce fraud risks.

“Think of it like checking your ID at a security checkpoint. KYC ensures that the person or company signing up for a service is who they say they are. This includes collecting information such as legal identification documents, proof of address, and sometimes financial statements. By verifying this information, companies can prevent criminals from creating fake accounts or abusing financial systems for illegal activities,” Thoppil said.

Enterprises and banks are increasingly using data analytics, machine learning and blockchain to solve these problems. Blockchain offers a decentralized and tamper-proof ledger system that increases transparency and reduces the risks associated with account manipulation and other types of trading fraud. Blockchain-based systems allow all parties to a trade transaction to access a single, immutable record, ensuring data integrity and speeding up settlement times.

The complexities and risks of global trade payments require innovative solutions that improve transparency, efficiency and security. As the industry continues to digitize, companies like ODeX and partners like Hapag-Lloyd are introducing new approaches to combat fraud and streamline transactions. With real-time monitoring, blockchain technology and API-based tools, the sector is evolving to meet the needs of a rapidly growing global economy.

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