Financial Institutions & Wealth Managers

How Banks Can Stop Fraud Before It Happens

Cameron Huddleston
Cameron Huddleston
April 4, 2024
How Banks Can Stop Fraud Before It Happens

Banks pump millions of dollars annually into fraud detection, yet their fraud losses continue to rise. More than 40% of U.S. banks saw an increase in fraud over the past year, with losses increasing by about 65%, according to PYMNTS Intelligence data

Those losses are compounded by the time and money spent on investigating fraud and recovering funds—resources that could have otherwise been spent on acquiring customers and boosting revenue. 

So it begs the question: Are banks fighting a losing battle? No, but they need to rethink their approach to fraud. Rather than spend so much time and money fighting back, banks could benefit by heading off the fight—stopping fraud before it happens. Putting a greater focus on prevention can be a winning strategy. 

Prevention begins with the customer

According to the Alloy 2024 State of Fraud Benchmark Report, 75% of financial institutions surveyed said they plan to invest this year in an identity risk solution to combat fraud. However, that same survey found that financial institutions ranked authorized push-payment (APP) fraud as their top fraud driver last year by case volume and losses. There seems to be a disconnect.

While banks are investing primarily in fraud tools to address technical vulnerabilities, criminals are bypassing those controls by going directly to customers and persuading them to hand over account information and authorize transactions. In other words, simply confirming identity won’t prevent fraud. To succeed in today’s world, fraud protection needs to address the weak link: customers. 

How to empower customers to prevent fraud

Account holders can be the best line of defense against fraud—if they are given the tools to protect themselves and respond to threats.  

  • Education: With both APP fraud and AI-driven fraud frequently resulting from scams targeted at individual consumers, 53% of financial institutions surveyed by Alloy said they plan to invest in anti-scam education tools over the next year. Research backs up the effectiveness of this approach.  A study by the FINRA Investor Education Foundation shows that if you know about a particular type of scam or fraud, you will be less likely to engage with it. 
    • Keeping customers informed about the latest schemes and common tactics used by scammers can protect them from exploitation. This calls for more than a one-time campaign, though. Education needs to be integrated into the customer experience through a steady stream of articles, newsletters and email alerts that can keep up with changing threats.

  • Smart Monitoring with Resolution Guidance: Proactive education is the first step in raising customer awareness of scam and fraud tactics. However, customers also need guidance on how to respond when confronted by fraud. 
    • This requires effective AI monitoring systems that catch changes in account holder behavior that might otherwise go unnoticed and alerts that provide action steps for dealing with issues that are being flagged. Providing customers guidance when issues arise gives them agency to address fraud on their own and rely less on bank staff for help (freeing up bank resources for revenue generation).


  • Trusted Contacts Infrastructure: Older customers, in particular, could benefit from having a second set of eyes on their accounts.. A survey by Cornerstone Advisors found that 87% of seniors manually check their accounts for suspicious activity without additional oversight by adult children or other trusted individuals. “This confidence—or possibly overconfidence—is what fraudsters want to see,” according to Cornerstone Advisors’ Aging and Banking report. “When an intended target thinks they have all their financial bases covered, a fraudster can capitalize on this confidence given there are no additional ‘eyes’ monitoring what is happening.”
    • A secure system that would allow older customers to name trusted contacts and give them view-only access to their accounts could provide an added layer of protection. This provides an opportunity for customers to identify the people who will be their first line of defense against exploitation. In turn, those trusted contacts with view-only access can help spot and stop small issues before they become big problems.

  • Early Intervention: The FINRA study found that 51% of people who reported a third-party intervention were able to avoid losing money to scams and fraud. Consulting with others harnesses collective knowledge about scams and can encourage potential victims to assess the situation before taking action, according to the study. 
    • Offering customers a scam detection tool to help them determine if an offer is suspicious or dedicated care agents they can reach out to with questions can provide another line of defense to stop fraud before it happens.

Investing in these resources to prevent fraud can reduce the time and money spent addressing fraud as it occurs. Large FIs might look to build out these resources on their own. However, partnering with a market-ready third-party solution can be more affordable and faster to implement.

For example, financial safety service Carefull partners with financial institutions to provide their older customers with senior-specific monitoring, education and support. It recently helped a customer at one of its bank partners—The Cooperative Bank (TCB) in Boston—catch fraudulent checks, including one written for $40,000. Then, a Carefull Care Agent walked the customer through steps to take to avoid future check fraud. On average, Carefull Care Agents save bank fraud teams 300 hours per year for every 1,000 customers enrolled in Carefull.

A service such as Carefull can become the first line of defense for banks, preventing issues from ever reaching the branch. Working with a trusted partner that has a proven track record of helping banks empower customers to protect themselves could be the key to stopping fraud before it happens.

To learn more about how Carefull can help your financial institution empower customers to prevent fraud, get in touch with our team.
Cameron Huddleston

Cameron Huddleston

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