In today's interconnected global economy, fraud remains one of the biggest threats to small and medium-sized businesses (SMBs). Yet, it’s not just the fraud itself that poses a challenge; the fear of fraud can be even more paralyzing. For many businesses, the concern over potential risks may prevent them from taking advantage of opportunities that could fuel growth, particularly in international markets. As one business leader put it, “For SMBs thanks to technology, today the world is your oyster, but if you’re worried the pearl is counterfeit, you’re not going to bother.” This perfectly encapsulates the dilemma many businesses face—how can they expand into new markets or form partnerships if they fear being duped by fraudulent entities?

Rising Fraud and Its Consequences

The numbers are clear and fraud is on the rise. Recent studies show that SMB lending fraud increased by 13.6% in 2023 alone, and 84% of surveyed businesses expect the issue to worsen over the next year. Bogus business credentials and fraudulent transactions are especially common, affecting both financial institutions and SMBs alike. In fact, small businesses can see up to 15% of their overall losses coming from fraud-related incidents, a much higher figure than larger companies experience.

While these statistics are troubling, they underscore an even larger issue—worry about fraud often deters businesses from taking proactive steps to expand their operations. A survey by PYMNTS found that nearly 47% of businesses had decided not to onboard new clients due to concerns over fraud. This hesitation stifles growth, limiting a business's ability to capitalize on new opportunities.  

Why Worry About Fraud is More Harmful Than Fraud Itself

Fear of fraud creates inertia. In a world where SMBs could engage globally, explore new supply chains, or work with innovative partners, the risk of fraud acts as a barrier. It's not just about the direct financial impact, either—dealing with fraud can waste time, disrupt operations, and lower staff morale. For example, 36% of businesses that experienced fraud reported suffering an average financial loss of $7,800, but the time spent dealing with the aftermath was just as costly.

Moreover, with the rapid advancement of cyber fraud tactics, businesses are increasingly concerned about their defenses. A worrying 88% of SMBs fear that the rise of artificial intelligence will fuel even more sophisticated fraud schemes in the near future. Yet, 68% of SMBs remain confident in their current defenses, a contradiction that reveals an ongoing struggle to balance risk and opportunity.

The Opportunity for Businesses and Banks to Compete Differently

This growing anxiety around fraud presents an opportunity for banks and financial institutions to differentiate themselves. By offering comprehensive fraud prevention tools, advisory services, and technological solutions, banks can help businesses feel more secure and enable them to expand without fear.

Investing in digital tools and multi-layered fraud detection systems can provide businesses with the reassurance they need to engage confidently in the global market. LexisNexis’ study highlights the importance of early fraud detection; with many lenders shifting their focus to preventative measures like advanced identity verification and real-time transaction monitoring. Banks that offer these kinds of services can not only prevent fraud but also instill confidence in their clients, helping them to grow rather than be paralyzed by fear.   While fraud itself is detrimental, the worry surrounding it is an even bigger deal. SMBs need the right tools and partners to navigate these challenges, and financial institutions are in the perfect position to step in. By competing differently—offering security solutions alongside financial services—banks can help businesses unlock growth, rather than be hampered by fear.

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Sources:

• LexisNexis Risk Solutions: SMB Lending Fraud Study, 2024.

• PYMNTS: How SMBs Can Fight the Fraud Threats of Remote Work, 2023.

• CFIB: The Cost of Fraud: How Small Business Owners Are Tackling Risks, 2024.