When you last saw expressions such as “economies of scale”, “standardized processes” or “efficiency and control” in an article on payments centralization, what did you do? Stop and think about what they really mean to you? Or skip over them and move on? Realistically, probably the latter. So although there is a wealth of material available on the advantages of centralizing payments, what do these come down to in practice?

According to a recent white paper, Treasury Technology – Six-step Guide to Gaining Sophistication through Simplification, a lack of visibility into payments can put an institution at risk of loss resulting from errors and fraud.” The main reason why companies centralize payments is to reduce fraud. This has always been the case, even though fraud now takes a wider variety of forms and has become more prevalent. According to a new report from JP Morgan and the Association of Financial Professionals, 73 percent of finance professionals report that their companies experienced attempted or actual payments fraud in 2015. Based on anecdotal conversations with treasurers, these figures are likely to be far higher in reality, as fraudulent behavior, whether internal or external, is rarely reported publicly.

Centralizing payments in itself does not stop unscrupulous employees or criminals outside the organization from targeting it, nor indeed does it eliminate the chances of their success. However, a common target for attacks is on subsidiaries and remote business units that are less likely to have the same process rigor or system-based controls as the company’s headquarters. Criminals also rely on users in these remote operations having less information and training on fraud threats.

Treasury and shared service centers are not immune to attack, but it is far easier to keep employees up to date on fraud threats, and make sure that standard processes are followed rigorously, such as making sure that all payments go through the correct approval process before transmission. Investing in robust payment systems that prevent users from deliberately or inadvertently circumventing payment controls, and building secure interfaces with payment banks is also far easier in a centralized payments function.

Most corporations recognize the benefits of centralizing payments, and have made some progress towards this (84 percent according to FIS’ 2015 payments survey (INSERT LINK TO STUDY). However, only 16 percent have implemented a payments factory to date. To be most successful in tackling fraud, whether internal or external, simply standardizing processes and reporting lines across the business is not enough, unless these processes can be controlled at a systems level. Even transmitting payments through a single hub exposes the company to risk if there is no way of routinely enforcing pre-transmission controls.

Implementing a payment factory is a reliable way of combatting fraud. By doing so, it is far easier to train staff, enforce rigorous segregation of duties, process payments and connect with banks securely and consistently. Some companies have found it difficult to create a business case for a payments factory in the past, as cost or working capital efficiencies have not appeared sufficiently compelling. Risk, rather than cost, presents a far stronger business case. The timing and value of losses are unpredictable, and are often avoidable. Treasury would not take a cavalier attitude to any other area of financial risk. Fraud deserves the same level of attention.