From Sign-Up to Payout: Where Fraud Can Enter Your System
You likely read about fraud and attempted system attacks regularly. Many business leaders see those stories and think, "That could never happen to us." However, fraud is becoming increasingly common in the business world. Criminals are constantly targeting companies in nearly every industry, working hard to infiltrate systems to steal money, data, and more.
One survey conducted by Business Wire unveiled that up to 90 percent of all U.S. companies were targets of cyber fraud in 2024. While you may think your systems are safe, there's a good chance you'll become a target sooner rather than later. A robust payout platform like Dots can help you stay protected, but how does fraud even penetrate systems in the first place?
Whether you send payouts to contractors or marketplace sellers, there are more vulnerabilities than you may realize. In this blog, we'll examine several points where fraud can enter your systems.
Overview
In the digital age, there are countless ways that bad actors can enter systems and harm your business. No company is immune. Fraudsters can target enterprises of all sizes if they find any potential vulnerabilities they can exploit.
That said, some of the most common marks for criminals are money and private data. Therefore, companies that send payouts, work with contractors, or gather sensitive user information are prime targets. Once scam artists and cybercriminals access a payout system, they can steal funds from your business, obtain user information, and cause considerable harm.
You can't afford to ignore fraud mitigation and management. To better understand your company's vulnerabilities, you must walk in a fraudster's shoes and examine the many ways in which they can enter your systems.
Sign-Up / Onboarding
One of the most common ways that scam artists enter payout systems is the same way legitimate users do. The onboarding process is how you set up new users or contractors. It's a way to bring new payout recipients into your business, gather relevant information for payment, etc.
There are many regulatory requirements involved with onboarding, and your business must comply with all applicable laws. It's always wise to consult with professionals and legal experts to cover your bases. However, you should also go beyond the basics to protect your company from fraud during user sign-ups and onboarding.
Criminals can create fraudulent accounts using stolen or synthetic identities. For instance, they can combine real data with fake information, exploit vulnerabilities in your onboarding process, and pass basic checks.
You must implement strong Know Your Customer (KYC) verification procedures to safeguard this entry point. Do your due diligence, verify all information received, and ensure you're onboarding legitimate users.
Verification & Compliance
Even with strong identity verification strategies and compliance measures, there are ways for bad actors to scam your business. Stolen identities paired with fabricated IDs and biometrics can overcome simpler verification checks. Additionally, fraudsters can develop sophisticated technologies to evade detection.
It's not enough to do the bare minimum of checks. The best way to prevent fraud is to implement more robust onboarding and verification processes with fraud mitigation at the forefront. Advanced fraud detection algorithms, comprehensive screenings, and continual monitoring can help you ensure that you don't willingly allow criminals into your system and gain peace of mind, knowing that the funds you sent aren't for illegal purposes.
Profile & Payment Details Setup
After successful onboarding, new users and payment recipients must establish their accounts and provide payment details. Unfortunately, this is another way that fraud can infiltrate your system.
Phishing attacks are becoming increasingly common as fraudsters target vulnerable individuals. Using social engineering tactics and clever deception, they can convince legitimate users to provide sensitive information like account logins or payment details. Once robbed of that data, scammers can alter their profiles or manipulate information within your system to direct funds to a fraudulent financial account, depriving your real users of the payouts you send.
Criminals can also exploit less protected payment details. For example, illegally obtaining a payout link would allow a bad actor to direct funds to a different account. Robust checks and verifications must be in place to ensure your payout links only work for intended recipients.
Work Submission / Activity Logging
Even if new users legitimately begin their journey with your company, they can cause harm later. Internal fraud is more common than you might think and can impact your business at any time.
Take, for example, fraudulent work submissions or activity logging. If your business relies on submissions to determine the amount you pay recipients, fraudsters can "game" the system. They might submit fraudulent work, rig activity logging systems, and employ other techniques to steal money through seemingly honest account activity. It's a form of payroll fraud that causes your business to pay more for falsified work.
Invoice Generation
If you accept invoices from contractors, they become a potential entry point for fraud. Invoices specify the goods or services provided and request payment from your business. Legitimate invoices are how contractors get paid. However, scammers can exploit the invoicing process to steal funds.
Invoice fraud can involve ghost vendors. This common form of fraud involves generating invoices from vendors, suppliers, or contractors that don't exist, allowing fraudsters to gain illicit funds under the guise of genuine services. Another tactic is manipulating real invoices by inflating the quantity or price of services. Alternatively, they can claim fake expenses to pad the invoice.
Invoice Approval
Typically, the person responsible for approving invoices will catch illegitimate documents. While that's not always true, a vigilant employee can often spot egregious scam attempts. But what if there's someone on the inside working with fraudsters?
Invoice approval fraud occurs whenever an internal employee authorizes fraudulent invoices. It's a sophisticated setup for criminals, but if they're successful, the arrangement can allow fraud to go unnoticed for months or years! That's why it's crucial to have strong fraud detection capabilities that can flag suspicious transactions and questionable invoices.
Payment Execution
Even if fraud doesn't enter the equation during sign-up, verification, or invoicing, it can still happen during payment execution. Fraudsters can exploit many potential vulnerabilities. Internally, criminals can manipulate or forge payment information to direct funds to a different account. Wire transfer and check fraud are also possible.
One of the more concerning forms of fraud is account takeover (ATO). ATO often occurs after successful phishing attempts, where criminals obtain account information. For example, scam artists can impersonate a different department or a business leader to gain access to financial accounts or payout systems. If that happens, they can make unauthorized transactions to siphon money or redirect payouts to a fraudulent account.
Post-Payout Activity
Post-payout fraud refers to criminal activity after your business executes a payout. It can take many forms, taking advantage of the time between when a payment occurs and when funds clear. That window of time might be short, depending on the payout method, but it's still enough for criminals to take action.
Overpayment scams, chargebacks, business email compromise, and more can still occur after initiating payouts. Once again, vigorous fraud detection systems monitoring all outgoing transactions can reduce fraudulent and suspicious activity, keeping your business and legitimate recipients safe.
How Dots Can Help
As you can see, fraud can invade your system in many ways. Worst of all, it can all happen under your nose. Criminals are more intelligent than ever, using sophisticated technology to sneakily and illegally enter systems. To fight fraud and manage your risks, you need a payout platform with built-in features that make a difference. That's where Dots comes in.
Dots does more than a few simple checks. The payout API monitors your payout processes from start to finish. During the onboarding process, KYC features comprehensive data verification measures and built-in compliance to create a solid barrier against fraud. It doesn't stop there. Dots continually monitors your payout system for fraud, ringing the alarms whenever suspicious activity occurs. Our algorithmic fraud detection is fully customizable, allowing you to define fraud criteria based on your needs and industry.
Pair all that with strong platform security, customizable payout links, and recipient management tools, and you have what you need to onboard users and send payouts confidently.
Get Started With Dots Today!
Don't let fraud harm your business, damage your reputation or put your payout recipients at risk. Dots is a feature-rich payouts platform that unifies your entire strategy. Send funds to contractors and recipients around the world while offering many payment options. Dots can automate several processes, help you comply with applicable regulations, and onboard new users with quick, easy, customizable workflows.
Throughout it all, Dots always prioritizes fraud prevention and security. Built-in tools and fraud management features go above and beyond. Send payments on your terms, better serve recipients, and simplify how you manage money without sacrificing safety.
Book your demo today to see Dots in action and learn more about how our unified payout platform can keep your business safe.