Data-Led Fraud Defense in U.S. Invoice Factoring: A Call for Collaboration and Standardization
Written by: Jialing Chia, Managing Director, MonetaGo
Invoice factoring, a pivotal component of trade finance, has become an attractive target for fraudsters. Such a target, in fact, that almost nine out of ten (89%) feel fraudulent activity has increased during the past financial year [1]. As technology advances, the risk landscape evolves rapidly, challenging financial institutions to proactively adapt and enhance their defenses.
The Current AI Fraud Landscape in Invoice Factoring Market
The U.S. currently accounts for approximately 15.22% of the global invoice factoring market, representing a significant share of a rapidly evolving financial service. The industry faces continuous pressure from AI-enabled fraudulent activities ranging from synthetic identities to deepfake technology.
Globally, fraud trends highlight the urgency:
· Deepfakes now constitute 7% of global fraud attempts [2], underscoring their potential threat to trade finance activities.
· In the first quarter of 2024, the U.S. experienced a 303% year-over-year increase in deepfake-related fraud cases, surpassing the global average increase of 245% [3].
· The Deloitte Center for Financial Services predicts that generative AI could enable fraud losses to reach $40 billion in the U.S. by 2027 [4].
In the U.S., these global trends serve as a critical reminder of the vulnerabilities within invoice factoring and related trade finance services.
Artificial Intelligence: Both Sword and Shield
AI and machine learning are transforming fraud prevention strategies, empowering institutions to swiftly identify and respond to suspicious activities. Algorithms that analyze transactional and behavioral risk indicators are pivotal in detecting anomalous patterns indicative of fraud. However, this same technological advancement lowers barriers for fraudsters, enabling easier and cheaper methods to execute sophisticated attacks.
For example, deepfake technology enables fraudsters to convincingly impersonate authorized signatories, bypassing traditional verification processes. Humans alone cannot replicate AI’s ability to quickly synthesize vast amounts of public data, identify nuanced patterns, and flag suspicious activities in near real-time. Unlike humans, AI can continuously monitor and cross-reference enormous datasets, highlighting anomalies invisible to conventional checks.
Case Study: Synthetic Identity Fraud
The International Factoring Association (IFA) cites synthetic-identity fraud and duplicate invoicing as top threats for 2025. Synthetic identities, created using a blend of real and fictitious data, have become a particularly pernicious form of fraud due to their difficulty to detect with conventional methods. Equally concerning is the rise of duplicate invoicing, where the same invoice or set of trade documents is presented to multiple financial institutions to obtain funding more than once. This form of fraud exploits the lack of visibility and coordination between lenders and is especially difficult to detect in cross-border or multi-jurisdictional transactions.
Recent collaborative data-sharing initiatives have emerged among factoring institutions, enabling real-time verification and improving collective risk awareness. These efforts have already led to the identification of previously undetected synthetic identities and instances of duplicate financing, underscoring the power of industry-wide cooperation.
“The fraudsters are very good at providing information. Your job is to distinguish fact from fiction.” - Alan Eliasof, CEO, Prestige Capital Finance, LLC
Collaborative Data Sharing: From Unthinkable to Indispensable
Just a decade ago, banks exchanging detailed transactional data was unimaginable, impeded by concerns about privacy, competitive advantage, and regulatory constraints. Today, advanced technologies such as confidential computing and secure cloud infrastructures, managed by trusted third parties, have facilitated secure, privacy-preserving data exchanges. These solutions ensure compliance with customer confidentiality requirements and anti-competition laws - with many instances of this registry technology already deployed around the world.
Despite these technological capabilities, regulatory inertia remains a critical obstacle. Financial institutions are highly regulated entities, and historically slow-moving regulators must accelerate to enable effective and secure data-sharing initiatives. Even when regulatory frameworks allow it, political sensitivities around data sovereignty, particularly in cross-border contexts, can create additional friction, complicating efforts to build unified fraud detection systems. Furthermore, institutions frequently face tension between safeguarding proprietary data and pursuing broader industry transparency. Fraudsters exploit this tension by capitalizing on communication and data-sharing gaps. Regulatory clarity on data portability and permitted disclosures, diplomatic cooperation and strengthening collaborative frameworks, therefore, becomes an urgent prerequisite for enhanced fraud prevention.
Privacy-preserving solutions, such as secure registries and shared negative-file databases are gaining momentum. These technologies do not necessitate direct sharing of sensitive data but instead allow institutions to simply ascertain “does this already exist in the ecosystem?”. For instance, FCI (Factors Chain International) and similar bodies are actively promoting secure transaction registries to combat duplicate financing of invoices. Such platforms allow real-time detection of duplicated invoices across multiple lenders, an invaluable resource in the fight against fraud.
The Critical Role of Data Standardization
The fragmentation of data across lenders, suppliers, and buyers significantly increases fraud risk. Standardized, high-quality data formats are key to rapid technology adoption and effective interoperability. While regional and jurisdictional nuances pose challenges, emerging technologies can effectively map diverse formats across ecosystems. The primary challenge remains ensuring consistent and complete data capture by institutions.
The International Chamber of Commerce’s (ICC) Digital Standards Initiative (DSI) has taken important strides through the Key Trade Documents and Data Elements (KTDDE) to accelerate the development of a globally harmonised, digitalised trade environment. However, questions persist:
· Who should lead standardization initiatives to ensure global adoption?
· How can industry bodies balance regional differences with the benefits of unified data standards?
Addressing these questions is essential to unlocking the full benefits of collaborative fraud detection and prevention.
Regulatory Landscape: Balancing Data Portability with Protection
The U.S. regulatory environment highlights a unique tension between data portability and strict data protection mandates. Regulations such as the Gramm-Leach-Bliley Act mandate transparency about data-sharing practices and the safeguarding of sensitive customer data. Financial institutions thus face dual imperatives: to facilitate secure cross-border data flows while rigorously protecting client confidentiality.
Economic and geopolitical tensions exacerbate this complexity. A global political leader recently shared a sentiment that, over the next 5-10 years, "the world is going to be a little less friendly," signaling heightened risk aversion. In such an environment, maintaining a delicate balance between openness and security will require agile and adaptive regulatory frameworks.
Technology Adoption Gap and its Risks
The technological adoption gap is apparent between larger financial institutions investing heavily in AI, blockchain, ESG data integration, and real-time APIs, while smaller factors lag considerably due to resource constraints. This digital divide increases their susceptibility to fraud, adverse selection risks, and higher operational costs. Approximately 70% of U.S. businesses rely on smaller domestic banks rather than the top four largest banks, presenting significant systemic economic risks.
Collaborative industry-wide platforms offer smaller factors affordable pathways to enhance their fraud defenses, promoting market stability.
Future Outlook: A Mandatory Shift Towards Collaboration
Collaborative approaches are rapidly transitioning from beneficial to indispensable. Initiatives by organizations such as the IFA and ICC emphasize collective industry commitment to overcoming privacy and competitive barriers through trusted frameworks and technology-driven governance.
Benefits of Collective Fraud Prevention
· Rapid identification of duplicate or manipulated invoices
· Enhanced detection of synthetic identities
· Reduction in false positives through collective intelligence
Call to Action: Unified Stakeholder Effort
The invoice factoring industry has access to advanced technologies and frameworks; however, proactive stakeholder adaptation and collaboration are imperative. Banks, independent factors, regulators, and industry associations, must proactively adapt, collaboratively refine, and adopt common data standards and fraud prevention protocols.
A unified approach is not merely desirable, but essential for sustained integrity, resilience, and growth of the invoice factoring market and trade globally. Strengthening collaboration among industry stakeholders, including global industry bodies such as FCI and IFA, is critical to drive meaningful action in combatting fraud in factoring and receivables finance to reduce business and economic risks and the significant costs associated with fraud.
About the Author
Jialing Chia has over 14+ years of experience in various roles across Transaction Banking, Product and Delivery functions in Trade, Export and Supply Chain Finance with international institutions such as JPMorgan, TD Bank, and Lloyds Bank. She lead the APAC Trade Innovation initiatives at Lloyds Bank, and the implementation of regional SCF programs during her time at JPMorgan.
The views expressed in the Commercial Factor website are those of the authors and do not necessarily represent the views of, and should not be attributed to, the International Factoring Association.