As information highways have opened new avenues to the global marketplace, many business owners have been attracted to these new frontiers. However, there are unique challenges associated with cross-border operations that go far beyond currency conversions and product delivery. When businesses start moving money across borders, it introduces more gaps for cybercriminals who are increasingly adept.
At the heart of these issues is counterparty risk. In the current cross-border payments model, the recipient of the transfer is often verified through a process built on manual callbacks and spreadsheets. Given the technologies that bad actors now possess, it has become a significant challenge to effectively verify counterparties in this fragmented process.
This has created a vulnerability that criminals can exploit. Because these attacks expose organizations to financial and reputational risks, it is critical for businesses to implement solutions that can optimize the verification process.
The Unaddressed Gaps
Despite the challenges, the global market offers an enticing opportunity. Due to breakthroughs in digital payments, more small- to medium-sized businesses and financial institutions can now participate in the worldwide economy. According to the Bank for International Settlements, cross-border payment volumes are projected to reach $250 trillion by 2027, in part due to this increased participation.
However, these organizations are also exposed to the risks of a system that has been historically challenging. Many of these issues have arisen from the correspondent banking model which has dominated international payments for decades, where a chain of foreign and domestic banks work to complete a single payment.
This complex process often causes payments delays as each institution must perform their portion of the process and adhere to their policies and regulations. The intensive operation required to shuttle these payments along also leads to high transaction fees.
As these payments are routed, there is often a lack of visibility into the payment’s status within the process and any issues impacting it. What’s more, the regulatory demands and currency components of each region must be considered when processing cross-border payments.
All these issues make international transactions a lengthy, costly undertaking. Since many of these functions are still performed using manual processes, it also creates the potential for errors and misrouting along the way.
Unfortunately, bad actors are acutely aware of the issues that plague cross-border payments, and they are actively working to exploit them. According to TransUnion, global businesses lost an average of 7.7% of their annual revenue to fraud in 2025—mounting to an estimated $534 billion.
“According to that same TransUnion report, U.S. companies lost an average of almost 10% of their annual revenue to fraud,” said Jennifer Pitt, Senior Fraud Analyst at Javelin Strategy & Research. “Whether fraud losses average 7% globally or closer to 10% in the United States, the impact to a company’s bottom line is significant. While not all fraud can be prevented, unaddressed gaps in prevention and verification continue to contribute to financial loss.”
These challenges are often compounded by the ways organizations approach controls, risk, and friction in international transactions.
“In some cross-border payment environments, controls exist but have not kept pace with how organized fraud operates today,” Pitt said. “As a result, those gaps are exploited by criminal networks. This also introduces the potential for large-scale fraud operations. Consumers are generally willing to accept some level of friction, and some friction is often necessary in financial crime prevention.”
“Organizations must balance applying the right amount of friction to detect illicit activity while still meeting the demand for cross-border payments,” Pitt said. “Recognizing that consumers will tolerate necessary friction when it protects them against fraud should give organizations more confidence in addressing the lack of transparency and identity verification common in cross-border payments. When implemented correctly, these controls do not hinder payments in the way organizations once believed.”
The Tech-Enabled Threats
One of the reasons why fraud has outmatched current controls and defenses is that bad actors increasingly have access to more effective technologies.
For example, this tech has allowed hackers to perform more account takeovers, where they gain unauthorized access to a targeted account at an online financial institution. The FBI Internet Crime Complaint Center recently warned about an uptick in account takeover fraud that has already cost organizations millions of dollars this year.
Emerging technologies also allow bad actors to create and deploy malware and ransomware on a far greater scale. The initial point of entry for these attacks—and for the lion’s share of fraud attempts—are phishing messages.
The phishing messages of years past were easier to spot due to typos and grammatical errors, but this has changed. One of the reasons why today’s phishing attacks are more effective is bad actors are leveraging artificial intelligence. AI allows cybercriminals to craft better messages and send them on a wide scale.
According to a SlashNext report, there has been a 4,151% increase in phishing attacks since open-source AI was launched in late 2022. Beyond phishing, AI has also been used to create deepfake impersonations, synthetic identities, and phony documentation.
In addition to technical sophistication, fraud is increasingly perpetrated by organized fraud operations. These syndicates are well-equipped to deploy their messages and attacks on a global scale.
This environment has made fraud and increasing challenge for organizations and consumers. According to the Association for Financial Professionals, 79% of U.S organizations reported attempted or actual payments-fraud incidents in 2024.
All these fraud risks are exacerbated when sending money across borders. In addition to fraud threats, organizations must be cognizant of the threats from organized threat actors who use cross-border channels for money laundering or terrorist financing.
“Fraudsters and cybercriminals understand the limitations organizations face when identifying organized crime, including gaps in cross-border visibility,” Pitt said. “To skirt detection efforts and distance themselves from the crime, threat actors frequently use cross-border channels. And because fraud and money laundering incidents increasingly overlap, failing to detect one can mean failing to detect the other. This is also why it’s critical that teams are not completely siloed.”
“Many organizations still operate with separate AML, fraud, and KYC teams that rely on different systems and data sets,” she said. “When activity is viewed in isolation rather than across functions, it becomes significantly harder to identify risk accurately, particularly in real time. This is why the FRAML approach—a combined fraud and money laundering team—is still being heavily discussed and debated among fraud professionals.
“While the regulations may be different with fraud prevention and AML practices, the need to see the customer and activity holistically across all illicit activity often outweighs any outdated reasons for separate teams,” she said.
Moving Away from Manual Processes
The threat of cross-border payments means that organizations seeking to enter the global market must protect themselves. This means moving away from manual processes that open organizations to greater risk.
“Automation and data visualization tools are extremely helpful in quickly identifying counterparties and how they might be linked to one another,” Pitt said. “These tools can often uncover organized crime rings more easily than just relying on static data that is eventually manually analyzed by people just trying to make sense of mass amounts of seemingly unrelated information.”
Because threat actors have access to sophisticated technologies, organizations will have to adopt technology to protect themselves. Even as AI been exploited to create fraud attacks, so can it be used to identify and flag suspicious activity.
“Being able to detect reuse in identity elements (like name and date of birth, photo, and/or SSN) across multiple accounts can help identify synthetic identities as well as money mule accounts—high-risk typologies currently being used for fraud and money laundering,” Pitt said.
One of the most important challenges in international transactions is verifying that the party on the other end of the transaction is who they claim to be. In the correspondent banking model, each party conducts a series of manual checks to ensure the identity of the recipient.
However, after all these checks, banks are often left to trust that the counterparty is acting in good faith.
“There are still financial institutions that rely heavily on manual identity verification, using human review as the primary method,” Pitt said. “Advances in document fraud have made it easier for fraudsters to create convincing fake identity documents that can bypass weak verification processes, including those where in-branch professionals manually inspect IDs and documents for signs of forgery.”
“Many financial institutions are still relying on legacy KYC checks that are only done once—usually during onboarding—and annually after that,” she said. “KYC checks should not only focus on understanding each customer, but also take a risk-based view of the counterparties they transact with. Some banks only look at the customer in a vacuum and not holistically. And some don’t thoroughly explore counterparties.”
The Cornerstone of Risk Management
To address these challenges, LSEG Risk Intelligence developed its Global Account Verification (GAV) platform. GAV is an API-based and portal-accessible solution that verifies bank account ownership in real time across more than 45 countries.
The GAV platform helps organizations confirm counterparty account details before releasing funds which can significantly reduce APP fraud, failed payments, and compliance risks under PSD3, NACHA, and PSR1.
This platform is a gamechanger for organizations who are attracted by the global marketplace—but leery about the cross-border payments landscape.
“It’s just as critical to understand counterparties as it is to understand each customer,” Pitt said. “Doing what are essentially risk-based, mini-KYC processes for relevant counterparties, along with understanding how counterparties might be linked to different account holders, can help financial institutions identify organized crime and fraud rings.”
“Being able to vet who account holders are and who they do business with is often a cornerstone of basic risk management practices,” she said. “Failing to meet compliance requirements can lead to significant consequences like consent orders, lawsuits, fines, reputational risk, and customer attrition.”
The post Solving for Fraud in Cross-Border Payments Requires Better Counterparty Verification appeared first on PaymentsJournal.
