Brandon Spear
Online buying has derailed traditional buyer-seller relationships. In days past, B2B sellers based credit extensions on trust. Today, those extensions are often made without ever coming face-to-face—opening up a Pandora’s box of potential fraudulent activity.
In an effort to combat fraud, B2B sellers have significantly increased the amount of buyer data they must gather before onboarding a customer. A potential pitfall of this is human error; a customer may accidentally set off a fraud-detection system by incorrectly entering data, resulting in a seller rejecting their application instead of accepting it. The seller must then recapture the data, which further delays the onboarding process. Additionally, another downside to this increased use of data is application fraud and the additional vulnerability if an account is compromised.
Easy access to data simplifies application fraud
In a highly digital environment, public information about companies is broadly available. Criminals can easily gather information like phone numbers and addresses of a company’s board of directors and change minute details so the data appears correct when they fill out the form. They wouldn’t change an entire phone number or address—that would be too easy to catch. Instead, hackers might change a single letter in an email address, making it difficult for sellers to spot the difference when manually evaluating customer data.
For example, when customers commit application fraud, pretending to be another business, they might sign up for monthly billing and 60-day terms. In this scenario, a customer could commit months of fraud, and the seller would detect the fraud only when it tries to collect payment when that customer’s first bill becomes due. By that point, the seller could be out hundreds of thousands of dollars.
It’s an arms race in many ways: Fraudsters are becoming increasingly sophisticated criminals, adept at figuring out the gaps in sellers’ onboarding processes and taking advantage of those weaknesses. On the other side, B2B sellers are left with the challenge of collecting and validating increasing amounts of buyer data.
Sellers are taking matters into their own hands
Unfortunately, unless a criminal hits a company repeatedly, the FBI isn’t interested. Law enforcement agencies do not have the bandwidth to look at individual cases of application fraud. Not only are the monetary amounts too low to warrant the attention of a federal agency, but these cases often cross state lines, introducing jurisdiction issues with local law enforcement.
The responsibility lies with sellers to protect themselves from fraud. And unless sellers are prepared for application fraud, they will get periodically hit by it—and in the process lose thousands of dollars. Sellers can take advantage of a variety of different tools and strategies to help validate that customers are exactly who they say they are:
- Ask for physical evidence. Validate all of the buyer’s input data and, if anything is incorrect, go back and ask for physical evidence. For example, if they provide an address and it doesn’t match up with company information online, you might ask them to produce a utility bill or invoice from another seller that indicates in writing that they actually belong to the said location.
- Gather data exclusively online. When buyers fill out forms digitally, sellers are able to see the location of the computer or device used to sign up. Then, if the IP address is not aligned with where the company is based, it raises a red flag. This can be as geographically similar to a headquarters in Kansas but an IP address in New York City, or as obvious as entirely different countries. The more forms sellers have online, the more they can test some of these metrics that are not immediately obvious with just a paper form.
- Analyze the timeline of activity. Often, fraudsters will find dormant companies that might be in good standing with good credit reports. They will legally change the small details, like the email domain, telephone number or address, which is simple to do in some jurisdictions. To vet for this, sellers must analyze buyers’ credit reports. If there is a company that has been dormant for the last six months and then just recently reinstated, that’s a huge red flag.
Application fraud is more common than seller’s think
It’s become remarkably complex for sellers to validate customers they don’t know, just to make sure they are the customers they want. But the full magnitude of application fraud only continues to grow. Simply put: By not doing anything to prevent application fraud, most businesses are putting themselves and their cash flow in danger. However, by taking the time to stay alert to potential red flags and validate data with a critical eye, B2B sellers can stay one step ahead of bad actors.
Brandon Spear is the president of MSTS, a global B2B payments and credit solutions provider, where he manages large, diverse global teams.
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