South African SMEs and cross-border payment

In an increasingly interconnected global economy, small and medium-sized enterprises (SMEs) rely on cross-border payments for international trade and expansion. This rise in international transactions, however, also carries a heightened risk of scams and financial fraud, says Ola Oyetayo, Chief Executive Officer at Verto.

This guide discusses the risks, challenges, and various scams associated with cross-border payments, particularly in emerging markets like South Africa. It also provides a detailed breakdown of six essential strategies for protecting your business from these threats, backed by supporting data and references.

Risks, Challenges, and Scams in Cross-Border Payments

Cross-border payments face various risks and challenges, from currency volatility to regulatory complexities. 

Additionally, several types of scams target SMEs, including:

  1. Invoice fraud: Scammers impersonate legitimate suppliers or business partners and send fake invoices with altered payment details. In a South African case, a Johannesburg-based company fell victim to a scammer impersonating their Chinese supplier. The scammer sent a fake invoice requesting payment for goods to a different bank account, resulting in the company losing R500,000.
  2. CEO fraud: Fraudsters impersonate high-ranking company executives and request urgent payments to be made to a third party. In South Africa, a Durban-based SME lost R300,000 after receiving a seemingly legitimate email from their “CEO” instructing them to make an urgent payment to a new supplier.
  3. Payment diversion fraud: Scammers hack email accounts and intercept legitimate payment requests, changing the account details to divert funds to their own accounts. A Cape Town-based SME was defrauded of R1 million when a cybercriminal intercepted an email containing a legitimate invoice and altered the bank account details before forwarding it to the company’s finance department.
  4. Advanced fee fraud: Fraudsters request upfront fees for services, goods, or investments that are never delivered. South African businesses have been targeted by scammers offering lucrative investment opportunities, such as the purchase of discounted gold from West African countries, only to disappear once the advance payment has been made.

Emerging markets like South Africa present additional risks due to factors such as less stringent regulatory frameworks, higher levels of corruption, and less developed banking infrastructure.

Strategies to Protect Your Business from Cross-Border Payment Scams

Here are six essential strategies to protect your business from these common types of scams that target SMEs and steps to protect yourself.

  1. Verify and authenticate payment recipients
  • Confirm recipient details through independent sources
  • Implement dual control
  • Be cautious of last-minute changes to account details
  1. Stay informed about common scams and fraud tactics
  • Subscribe to fraud alerts from industry organisations and government agencies
  • Regularly review resources from reputable sources
  • Encourage employees to report suspicious activity and implement training programs on fraud prevention
  1. Use secure platforms and services for cross-border payments
  • Employ end-to-end encryption
  • Utilise multi-factor authentication
  • Choose platforms with regular audits and accreditations from relevant financial authorities
  • Opt for transparent and competitive fees
  1. Monitor and review your payment processes regularly
  • Set up internal controls and segregation of duties
  • Conduct regular audits and reconciliations
  • Use analytics tools to identify patterns and trends in payment activity
  1. Establish clear communication protocols and employee education
  • Develop a clear communication protocol for reporting potential fraud
  • Provide regular training on fraud prevention and detection
  • Encourage a culture of transparency and accountability
  1. Develop a risk management strategy for emerging markets
  • Conduct thorough due diligence on potential business partners, suppliers, and financial institutions
  • Understand the local regulatory environment
  • Implement additional safeguards, such as using local legal counsel and financial experts
  • Maintain ongoing monitoring of the emerging market’s economic, political, and regulatory landscape

Next steps

Safeguarding your South African SME from cross-border payment scams is an ongoing process that demands vigilance, awareness, and the implementation of best practices. By following the strategies outlined in this guide, you can protect your business against financial crime and ensure the security of your international transactions.

Being proactive in understanding the various types of scams and taking preventive measures can significantly reduce the risk of your business falling victim to cross-border payment fraud. It is crucial to create a culture of awareness and transparency within your organisation, fostering open communication and employee education to empower your team in identifying and reporting suspicious activities.

By adopting these strategies and staying informed about the latest scams targeting SMEs in emerging markets like South Africa, you can navigate the complex world of cross-border payments with greater confidence, mitigating risks, and ensuring your business continues to thrive in the global marketplace.

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