What is payment diversion fraud (PDF)?

14 May 2024 By PAYCEC

Payment diversion fraud (PDF), also known as business email compromise (BEC), or mandate fraud, is a common kind of financial fraud that involves faking, stealing, and illegally using invalid invoices or payment requests sent back and forth between a company and its suppliers.

Particularly, to make this payment diversion fraud trick, fraudsters will contact businesses or customers through messages, emails, voice mails, or any form of telecommunication that the B2B businesses use to their partners, claiming them to be from their partners, to trick them into giving out their bank account details.

Then, the fraudsters will create fake email addresses with the name and information of the owners, which are very similar to the real ones, to trick them into sending payments right into their newly created bank accounts.

This form of fraud can cause significant financial losses to businesses and can have serious consequences for their relationships with suppliers and partners.

To safeguard yourself against this growingly frequent hazard, you must comprehend the nature of payment redirection fraud and take proactive steps.

How Payment Diversion Fraud Normally Happens In Actual Cases

The Payment Diversion Fraud involving payment redirection happens in five stages:

1. Communication compromise: Con artists obtain access to the channels of communication used by companies to communicate with their vendors or suppliers. This can happen by fraudsters taking advantage of message interceptions, email account hacking, or holes in the communications infrastructure.
2. Spoofing: Frauders, with all of the stolen information, will fabricate phony email addresses or websites that closely match those of real parties, and trick the employees of the organization into believing that the phony communication is genuine, which causes confusion and information breaches.
3. Requests made fraudulently: Fraudsters, with all of the collected information, will send phony invoices or payment requests to the intended company by using hacked communication channels and false identities. Often, these requests instruct businesses to transfer payments to an account under the fraudsters' control.
4. Redirecting payments: Fraudsters frequently make requests that businesses are unaware are fake. Payment transactions will then be routed to a third account that isn't the company's supplier.
5. Fraud detection: This is often too late for victims to realize, for it is mostly found after money has been transferred. When suppliers discover that the target firm is not paying their invoices, they will contact the supplier and compare their accounts with the business.

Preventive Measures Against Payment Diversion Fraud

Businesses can avoid payment redirection fraud by taking the following tips:

• Verify transactions: The easiest and simplest way to spot payment diversion fraud is to check if the sender is from a trustworthy source, or whether it belongs to the official communication channels of the company. To do that, you need to frequently employ techniques for verification that encompass examining the legitimacy of the vendor or supplier, verifying any alterations made to the payment instructions before the transaction, and checking the accuracy of the contact details.
• Employ secure communication channels: When exchanging sensitive financial information, businesses should use highly secure chat platforms or encrypted email. Besides, you must also adhere to the terms of payment that your suppliers have provided you.
• Use dual authorization to authorize payment requests: Before completing a transaction using this approach, employees of the company must examine and authorize payment requests or modifications to payment instructions. This works like a two-layer protection for the business’s financial resources, avoiding transactions made by mistake and due to being tricked by fraud.
• Employee education: Prevention is better than cure. Therefore, businesses should not only prepare beforehand the plan and strategies for handling fraud, but also routinely educate their staff about these types of fraud, how to detect them, how to deal with them, and possible indications of payment redirection fraud, such as shady emails, odd payment requests, or modifications to payment instructions.
• Verification of Suppliers: Businesses should update and authorize supplier data regularly, and confirm the legitimacy of new suppliers who are employed for the first time.

As mentioned above, payment diversion fraud involving false payment redirection is a serious risk to all companies. This kind of fraud results in businesses monetary loss, harm to one's reputation, and legal ramifications. As a result, preventing payment redirection fraud can be achieved more successfully by being aware of the strategies that scammers employ.

Businesses should select a secure payment solution provider in addition to the aforementioned preventative measures to reduce fraudulent redirection. Among those reliable payment security solution providers out there, PayCEC stands out as one of the dedicated companies to assisting companies in safeguarding their financial transactions and defending against fraudulent payment redirection.

With its utilizing cutting-edge fraud detection technology, encryption protocols, and proactive monitoring, PayCEC offers a dependable and secure payment processing platform that helps businesses reduce fraud risk, and make sure they can thrive far in the future.