Funds transfer fraud (FTF) is a common and relatively simple online crime that’s becoming increasingly costly and more sophisticated.
Incidents and initial losses have skyrocketed by 78% since 2020—averaging $388,000 per attack—and the window to recover stolen funds typically lasts only 24 to 72 hours.
Small businesses continue to face significant challenges from funds transfer fraud. While the frequency and severity of FTF events dipped in the first half of 2024, losses remain substantial—following a record $10 billion lost to fraud in 2023, according to the Federal Trade Commission. In the first half of 2024, the average initial loss from an FTF event was $218,000, underscoring the ongoing financial risks businesses must navigate.
What is Funds Transfer Fraud?
Funds transfer fraud occurs when a cybercriminal initiates or redirects a financial transaction without the knowledge or consent of the account holder. This can happen through phishing attacks, business email compromise (BEC), and other social engineering tactics.
Attackers often pose as trusted individuals—such as a CEO, supplier, or legal representative—convincing finance teams to unknowingly transfer funds to fraudulent accounts. Since these scams don’t require hacking into financial systems (just email access), they often bypass normal fraud detection measures.
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How Funds Transfer Fraud Happens
The fraud process typically follows these steps:
- Victim Identification – Attackers target finance personnel, executives, or employees involved in money transfers.
- Phishing Attacks – Fraudsters send emails to steal login credentials, often disguised as legitimate requests.
- Unauthorized Access – Once attackers obtain credentials, they log into financial systems and monitor transactions.
- Transaction Interception – They wait for ongoing payments and modify payment instructions.
- Email Rule Manipulation – Attackers create mailbox rules to hide warning signs.
- Fake Payment Requests – Fraudsters impersonate executives or vendors to request urgent fund transfers.
- Criminal Verification – Attackers may use deepfake voice or video to confirm fraudulent transactions.
- Funds Transfer to Fraudster – The finance team processes the payment, sending funds to an illegitimate account.
- Repeat Attack – Once successful, attackers may target other vendors, partners, or employees.
The Role of AI in Funds Transfer Fraud
Artificial intelligence (AI) is playing an increasing role in both committing and preventing funds transfer fraud. Cybercriminals are leveraging AI to enhance social engineering attacks, automate phishing campaigns, and create deepfake audio or video to impersonate executives with greater realism.
However, AI is also a powerful tool in defending against fraud. Companies are adopting AI-driven solutions to:
- Detect Anomalous Transactions – AI-based fraud detection systems monitor transaction patterns and flag suspicious activities in real time.
- Enhance Identity Verification – AI-driven biometric authentication methods, such as voice and facial recognition, add extra security layers.
- Improve Email Security – AI tools analyze email metadata and content to identify phishing attempts before they reach employees.
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How to Prevent Funds Transfer Fraud
Since this fraud starts with compromised emails and social engineering, the best defense is a multi-layered security approach.
1. Multi-Factor Authentication (MFA)
Requiring employees to use MFA on email accounts prevents unauthorized access, even if passwords are stolen.
2. Multi-Step Verification for Payments
Set up internal controls that require multiple approvals for large transactions, reducing the risk of a single compromised account leading to fraud.
3. Dual Control for High-Value Transfers
No one person should have full authority to initiate and approve fund transfers. Require two independent individuals to sign off on financial transactions.
4. Advanced Email Security Tools
Use tools that detect suspicious login attempts, unauthorized email forwarding, and phishing attacks before they compromise systems.
5. AI-Powered Real-Time Monitoring & Alerts
Implement AI-based fraud detection tools that analyze behavioral patterns and flag suspicious transactions before they are completed.
6. Employee Cybersecurity Training
Educate employees to spot phishing emails, verify urgent payment requests via a second method (such as a phone call), and report suspicious emails.
7. Regularly Review Transactions
Monitor financial activity frequently to catch irregularities before payments are processed.
Final Thoughts: Don’t Let Weak Security Drain Your Business
Funds transfer fraud is one of the easiest ways for businesses to lose money—but also one of the easiest to prevent. By implementing stronger authentication measures, internal verification processes, AI-driven fraud detection, and employee training, organizations can significantly reduce the risk of falling victim to these scams.
Need Help Protecting Your Business? At Interlaced, we specialize in helping startups and growing businesses implement cutting-edge cybersecurity solutions to prevent threats like funds transfer fraud. Our team of experts ensures your IT infrastructure is secure, efficient, and resilient against modern cyber risks.
Want to learn more? Watch our webinar “2025 Cyber Threats: Protecting Your Startup from Modern Risks, where our experts discuss this and other growing threats in 2025.
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