Fraud is Growing and Mutating. Cut It Off As Early As Possible

According to a new report, the explosion of financial fraud – and its increasing sophistication and professionalization – will require a refreshed response from banks and credit unions, one that emphasizes upstream prevention in onboarding and identity verification in real time.

The report: 2025 State of Fraud Report
Source: Alloy

Why we chose this report: Fraud continues to blossom across the financial landscape, but its preferred targets and vectors are shifting rapidly. Understanding these changes is important in shaping effective responses from banks and credit unions.

Executive Summary
The 2025 State of Fraud Report reveals a critical inflection point in the financial industry’s battle against fraud, with 60% of institutions reporting increased fraud attacks affecting both consumer and business accounts. The landscape is dominated by sophisticated fraud rings, while digital channels (online or mobile banking) remain the primary vulnerability.

In the face of rising threats, financial institutions report they are responding by implementing AI-powered fraud detection and investing in identity risk solutions in 2025.

The report highlights a significant shift toward proactive fraud prevention, with organizations recognizing that reputational damage can be as devastating as direct financial losses.

Key Takeaways and Data Points
Fraud attacks continue to evolve and increase, with nearly two-thirds of financial institutions experiencing growth in fraud events, led by enterprise banks at 67%, while 31% of organizations faced total fraud losses exceeding $1M in the past year.

Professional fraud rings have emerged as the dominant threat, responsible for almost three-quarters of attacks, marking a shift from previous years when first-party fraud was more prevalent among top fraud types. AI adoption for fraud prevention has reached near-universal levels, with 99% of institutions now using AI tools and 93% believing machine learning will revolutionize fraud detection.

Financial institutions are prioritizing identity-based fraud prevention, with 64% planning to invest in identity risk solutions in 2025, acknowledging their effectiveness in reducing fraud rates. What we liked about this report: It’s a comprehensive look at the state of fraud in financial services, while pinpointing significant differences in both fraud patterns and fraud response among institutions of different types and sizes. The report also spotlights common points of failure (onboarding) and common operational shortfalls (real-time detection).

What we didn’t: The report doesn’t pass explicit judgement on which fraud prevention tactics are most effective and leaves a couple of intriguing ideas (such as “citizen fraudsters) relatively unexplored.

Courtesy of By David Evans, Chief Content Officer, the Financial Brand