The New Reality of Fraud and Why Banks Must Adapt

Why Banks Are Facing a New Wave of Fraud Pressure

Walk into the fraud department of a modern financial institution and the urgency is unmistakable. Alerts are rising, customer claims are escalating and legacy systems are straining under the volume. The 2025 State of Fraud and Financial Crime in the United States report, produced by PYMNTS Intelligence and commissioned by Block, shows a financial landscape undergoing rapid change. The most notable shift is the return of unauthorized-party fraud as the dominant threat.

Unauthorized-party schemes now account for 71 percent of all incidents and dollar losses. This category includes credential theft, account takeovers and other attacks where criminals gain access to customer accounts without permission. The reversal of last year’s downward trend highlights how fraudsters are adapting faster than many institutions can respond.

Average fraud loss rates rose modestly to 0.8 basis points across the industry, but this average conceals significant disparities. Large banks reported fraud losses nearly four times the industry average, due to their broader exposure and higher transaction speeds. Meanwhile, 46 percent of financial institutions say fraud schemes are becoming more sophisticated, compounding the challenge.

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The Challenge of Evolving Fraud Schemes

Financial institutions are not only dealing with more advanced fraud techniques. They are doing so amid regulatory pressures and operational strain. Nearly half of institutions say overlapping regulatory requirements are adding complexity, while 41 percent point to challenges tied to modern, faster payment systems that require real-time monitoring and resolution.

The rise of unauthorized-party fraud suggests that traditional, rules-based systems are no longer enough. Credential theft and account takeovers rely on behavioural manipulation, phishing, remote access tools and social engineering that bypass simple pattern matching. As a result, institutions are investing in stronger identity verification, device intelligence and active behavioural monitoring.

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Technology Steps In

Sixty-eight percent of financial institutions plan to increase fraud-detection spending this year. The report identifies artificial intelligence and behavioural analytics as the most important components of modern fraud defence. These systems allow institutions to anticipate emerging threats and respond faster when anomalies occur.

AI-driven platforms assess behavioural patterns in real time, comparing transactions against expected customer profiles. Cloud-based detection tools enable faster updates, broader data sharing and more flexible monitoring across payment types. These capabilities are essential as payment environments expand to include real-time rails, digital wallets and embedded finance.

Institutions adopting hybrid models that combine AI with skilled human review are finding the highest success rates. Automation manages volume and speed, while analysts focus on high-risk escalations.

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Beyond Efficiency

The true cost of fraud goes far beyond direct financial losses. Half of financial institutions report damage to customer loyalty when fraud occurs, while 44 percent cite reputational harm. Lost trust leads to lost business, a risk that can impede long-term growth.

To counter this threat, institutions are prioritizing customer communication and transparency. Clear explanations of fraud protections, faster claim resolution and proactive outreach help reinforce safety. Institutions investing in these areas are more likely to retain customers after an incident.

Fraud is no longer a narrow operational problem. It is a customer experience issue that shapes perceptions and determines long-term loyalty.

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Payment Solutions with Kubera Payments

At Kubera Payments, we help businesses across North America move millions of dollars daily, whether in-store, online or on mobile.

Our team of payment experts is here to guide you through the complexities of fraud prevention and payment security. We work closely with acquirers and technology partners to ensure your transactions remain secure, compliant and reliable.

Get expert advice on strengthening your payment security. Contact our team at sales@kuberapayments.com or 604-484-9278

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