Laura Watson
Senior Director of Marketing Partnerships, CFIB
Joseph Falzata
Public Policy Intern, CFIB
Small businesses across Canada are increasingly under threat from fraud, with half of businesses targeted in the last 12 months, according to new research from the Canadian Federation of Independent Business (CFIB) in collaboration with Interac Corp. (Interac). While broken windows and emptied cash registers take the headlines when it comes to business-related crime, digital scams and cyberattacks can be equally malicious and even more damaging.
Growth of digital fraud
While small businesses are most likely to have experienced fraud attempts in the form of email scams and phishing (85%), text scams (77%), and phone call scams (76%), the most successful types of attacks on small businesses are reported to be payment fraud (19%) and fraudulent chargebacks (16%), which happen when a customer falsely disputes legitimate transactions. As more business transactions occur digitally, and the use of electronic payment methods becomes mainstream, digital payment fraud is a growing area of concern for small businesses.
Nine in ten business owners are also worried that the rise in the use of artificial intelligence (AI) will make fraud more sophisticated and harder to detect. Educating business owners and their staff on how to spot scams and protect their business online is a crucial step in preventing cybercrime.
The cost of fraud
Over three-quarters (77%) of small business owners are more concerned than ever about fraud, yet many are unable to invest in security measures to protect their businesses. As one business owner from Ontario shared, “there is a cost to train staff, to pay for cybersecurity, [and] to meet the requirements to be insurable.” Nearly two-thirds (65%) of business owners also report that resource constraints limit them from taking further action to protect their business.
At a time when business owners are dealing with staggeringly high costs of doing business, including labour, taxation, and fuel costs, the time and money lost through an unanticipated security breach could be the difference between keeping the doors open or closing them.
Though the average cost to a small business of a successful scam is reported to be approximately $7,800, this includes legal fees, lost value of goods and services, and the cost of replacing equipment. Most fraud attempts target smaller monetary amounts or personal data, which are less likely to be detected and are subject to more lenient penalties.
It’s not just the financial implications of fraud that are crushing businesses. Time lost dealing with the aftermath of the incident and the stress caused by the situation are also major byproducts of fraudulent attacks.
Prevention and recovery
At a time when business owners are dealing with staggeringly high costs of doing business, including labour, taxation, and fuel costs, the time and money lost through an unanticipated security breach could be the difference between keeping the doors open or closing them.
It is imperative that business owners prepare themselves against the threat of cybercrime. Businesses shouldn’t underestimate the importance of strong passwords and employing two-factor authentication. Regularly updating software is an effective first line of defence from online bad actors. Business owners must also engage their employees in digital security processes. Training employees to spot fraudulent emails or messages can prevent attacks before they begin, and using cloud-based storage to store files can limit data loss risks.
Governments also can play a role in aiding businesses in the fight against fraud. The federal government should expand the Credit Card Code of Conduct to make the process around chargebacks more transparent and consistent. Additionally, governments could use crime mitigation programs, as seen in B.C., as a blueprint to providing financial assistance to small businesses trying to combat cybercrime. Rather than limiting preventative subsidies to cameras and locks, crime mitigation programs could be expanded to include anti-virus software and other I.T. security measures.
As payment methods and services become increasingly digitized and the potential threat of AI grows, governments, business owners, and employees must work together to find solutions in the fight against fraud.
Read the Cost of Fraud report in full.
