7 Ways Virtual Payments Are More Secure than Checks and ACH
While consumers have overwhelmingly embraced electronic methods of paying for goods and services, most businesses rely on the same process for paying suppliers that they used in the 1960s: paper checks!
Businesses surveyed by the Institute of Finance and Management cite several barriers to electronic payments adoption, including a lack of departmental and IT resources, no capital budget, a lack of senior management support, and concerns that suppliers will not accept electronic payments.
But the most surprising reason that businesses say they have not migrated to electronic payments is the fear that electronic payments will make their business more vulnerable to payments fraud. Ironically, checks are the single-most abused form of business-to-business payments, the Association for Financial Professionals reports. 75% of all businesses have experienced check fraud.
The root of the check-fraud problem is that it’s easy for scammers to intercept paper checks, change the payee (“wash” away the original payee information), and re-present the check to themselves. Making matters worse, identifying and undoing check fraud is typically not a fast or easy process.
It’s not that businesses are turning a blind eye to the vulnerabilities of paper checks. 80% percent of finance executives are “concerned” or “very concerned” about payments fraud, Forrester Research reports. It’s that migrating to Automated Clearing House (ACH) payments–which, until recently, was the de facto standard for electronic payments between businesses–is harder than it should be.
Paying a supplier via ACH typically requires suppliers to share their banking account and routing and transit numbers with buyers who wish to make a payment. Sharing sensitive banking information rightly concerns many businesses. And many finance executives wonder why they need to share this information at all, when the purchase of big-ticket items such as large-screen televisions doesn’t require consumers to provide sensitive banking information to big-box retailers such as Target or Best Buy. What’s more, there is no way for a buyer to be sure that the banking account and routing and transit numbers they receive is their supplier’s depository account, and not the personal account of a scammer; in many cases, a buyer will only discover the deception weeks or months later, after the supplier has complained that they never received their funds, and the scammer is long gone.
Despite their obvious failings, paying suppliers with paper checks eliminates a lot of this friction; businesses can write checks to anyone. Thus, the resiliency of paper checks for supplier payments.
Businesses clearly need an easier–and more secure–way of paying suppliers.
We are big fans of paying suppliers using virtual payments. Our services make it easy to pay suppliers electronically. Importantly, our services are more secure than checks and ACH in 7 ways:
That’s where an electronic payment network comes in, which is more secure than checks and ACH in 7 ways:
- Better technology: The ACH network relies on antiquated 40-year-old technology. Conversely, card networks use sophisticated modern technology with built-in security.
- No need to exchange sensitive banking information: Virtual payments don’t require suppliers to share their banking account and routing and transit numbers with buyers.
- Supplier validation: With virtual payments there is no chance that a bad actor can provide a buyer with a banking account number that doesn’t belong to the supplier. What’s more, all buyers and sellers who make and receive virtual payments are vetted to ensure their identity and financial standing, and to ensure they are not part of any sanctions lists. The process of vetting buyers and suppliers provides a degree of underwriting and transactions are regularly monitored for suspicious activity.
- Single-use virtual payments: Paying suppliers using a virtual account number reduces the chance of fraud. Virtual payments are plastic-less, one-time use transactions that tie a 16-digit account number to a specific amount, invoice number and/or industry code (e.g. healthcare). Built-in functionality ensures that virtual payments can only be utilized by vetted and validated partners, and not re-used.
- Little chance of intercepted payments: Unlike paper checks, it is hard for scammers to intercept virtual payments and change the payee. What’s more, anyone who accepts a virtual payment from a scammer accepts responsibility for the potentially fraudulent transaction. If suppliers choose to receive closed-loop card payments processed by their bank through a smart payment network, the chances are further reduced that a virtual payment number will be fraudulently used by an associated third-party.
- More accountability: Suppliers are responsible for losses associated with card fraud in cases where they do not follow prescribed procedures (e.g. a gas station operator who processes a card transaction for a consumer who says they ‘forgot their card at home.’). What’s more, businesses can be banned from a card network for using a card in a fraudulent manner, which reduces the scope of bad actors.
- No need for you to become a payments expert: Finexio does the heavy lifting for its customers when it comes to complying with payments regulations and the latest security standards. This frees our customers to focus on the finance tasks they were hired to perform.
Familiarity with paper checks is no reason for businesses to take on greater risk of fraud. ACH payments offer only marginal improvements in security. Paying suppliers via Finexio delivers the ease-of-use and peace-of-mind that businesses need to migrate to electronic payments.
If you’d like to learn more, please contact us.