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How global trade actors are turning to fintech to tackle fraud
ODeX tells FreightWaves about the complexities behind combating global trade fraud. (Photo: Jim Allen/FreightWaves)
With billions of dollars processed every day, cross-border trade payments have become increasingly complex. Companies must navigate a range of banks, clearinghouses and payment processors, all of which assess fees and contribute to potential delays.
Traditionally, cross-border payments are slow, opaque and costly, causing cash flow problems for businesses. For instance, intermediary banks involved in transactions each add fees and processing time, making total transaction costs less transparent for trading companies.
As trade expands, fraud risks grow as well. Higher volumes of cross-border transactions mean payment systems are more susceptible to fraud, especially in high-risk regions. For instance, the Asia-Pacific region reports some of the highest fraud rates, with online payment fraud losses expected to exceed $200 billion by 2024. In Latin America, fraud costs companies up to 19% of annual revenue, underscoring the critical need for fraud detection investments in these regions.
SONAR chart showing outbound booking volume from Uruguay’s Port of Montevideo, one of Latin America’s fastest-growing ports since 2019. Click here for more information on SONAR. (Photo: SONAR)
Payment security challenges
A 2023 report from The Global Treasurer highlights efforts by financial leaders like Goldman Sachs and JP Morgan to address these inefficiencies. They are developing API-driven solutions that enable businesses to monitor payments in real time, reduce costs and streamline international payment processes. A notable example is the recent collaboration between digital trade finance platform ODeX and global carrier Hapag-Lloyd, which partnered with PayPal to offer a transparent payment service.
“The integration of PayPal into ODeX delivers unparalleled convenience and security to Hapag-Lloyd customers,” Binai Thoppil, co-founder and chief commercial officer of ODeX, said in an email to FreightWaves. “By allowing payments without the need for login credentials and offering the cheapest card payment rates in the industry, customers can now experience a faster and more cost-effective transaction process.”
ODeX provides automated invoicing, real-time updates, payment tracking and transparency. Its digital payment options and reduced credit card fees alleviate cash flow issues, accelerating payment cycles. Since their 2023 partnership, Hapag-Lloyd has rolled out ODeX solutions across Asia, the Middle East, Africa and, more recently, the United States.
Thoppil told FreightWaves that partnerships with integrated solutions like these are crucial for fraud prevention on a global scale. Fraud in global trade finance is exacerbated by digitalization, with common tactics including business email compromise (BEC), phishing and invoice manipulation.
BEC, for example, involves cybercriminals impersonating vendors to reroute funds to fraudulent accounts, causing significant financial losses. In 2022 alone, The Journal of International Money and Finance reported that fraud cost the global economy billions, with BEC losses alone exceeding $2 billion worldwide.
According to Thoppil, fintech solutions now use fraud-detection algorithms to identify patterns that indicate fraudulent activity.
“[Patterns like] suspicious login times, unusual payment destinations, high-frequency transaction patterns, and inconsistent IP addresses from the user’s usual activity,” Thoppil explained. “Machine learning algorithms use these patterns to flag potential fraud in real-time, blocking suspect transactions or requiring additional verification before allowing them to proceed. For example, if a user typically transacts from the US and suddenly initiates a high-value payment from an unrecognized foreign IP address, ODeX’s system would detect this as anomalous behavior, prompting an alert or verification process to prevent possible fraud.”
With the increase in cyberthreats targeting trade payment platforms, remote work and online transactions heighten vulnerability to attacks like ransomware and phishing. According to finance think tank Global Financial Integrity, misinvoicing, in which companies falsify invoice values to evade taxes or launder money, remains one of the most significant threats, leading to substantial revenue losses globally.
To combat these threats, companies have implemented multilayered security measures, including encryption, two-factor authentication and regular system audits. Encryption protects sensitive transaction data, while two-factor authentication adds an extra layer of security by requiring users to verify their identities. Additional regulatory requirements, such as Know Your Customer (KYC) standards, ensure compliance and reduce fraud risks.
“Think of it like checking ID at a security checkpoint. KYC ensures that the person or business signing up for a service is who they say they are. This involves collecting information such as legal identification documents, proof of address and sometimes financial records. By verifying this information, companies can prevent criminals from setting up fake accounts or misusing financial systems for illegal activities,” said Thoppil.
Businesses and banks are increasingly adopting data analytics, machine learning and blockchain to address these challenges. Blockchain offers a decentralized and tamper-proof ledger system that increases transparency and reduces risks related to invoice manipulation and other types of trade fraud. Blockchain-based systems allow all participants in a trade transaction to access a single, unchangeable record, ensuring data integrity and speedier settlement times.
The complexities and risks of global trade payments necessitate innovative solutions that enhance transparency, efficiency and security. As the industry continues to digitalize, companies like ODeX and partners like Hapag-Lloyd are pioneering new approaches to combat fraud and streamline transactions. Through real-time monitoring, blockchain technology and API-driven tools, the sector is evolving to meet the demands of a rapidly expanding global economy.
