Fraud Report Reveals FIs Will Need AI as a Protection Tool

By Roy Urrico

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Fraud had a major impact on financial institutions and fintechs in 2024, and 2025 will mark a significant shift from theoretical artificial intelligence (AI) applications to practical implementations, both by fraudsters and financial organizations. That is among the findings and predictions in the Alloy 2025 State of Fraud Report.

Fraud at financial institutions and fintechs grew across consumer and business accounts in 2024, according to the report from New York City-based Alloy, which provides an identity and fraud prevention platform for financial institutions and fintechs.

The Alloy report defined a fraud event “as an effort to exploit a vulnerability in an organization’s fraud controls, and/or deliberate deception of the organization, consumer, or business for financial gain.”

The report surveyed 486 industry leaders at financial organizations that spanned enterprise banking (32%), mid-market banks and credit unions (25%), and fintechs (42%). The survey, conducted by The Harris Poll, ran from October 2-28, 2024.

How Did Fraud Affect Financial Institutions and Fintechs In 2024?

Alloy reported some key takeaways:

• Sixty percent experienced an increase in fraud attacks affecting consumer and business accounts.

• Fifty-six percent reported catching fraud most commonly at the time of the transaction, while only 33% indicated that they detect fraud most commonly at onboarding.

• Ninety-three percent agreed that machine learning and generative AI will revolutionize fraud detection.

• Seventy-one percent found financial criminals and fraud rings to be the main culprits behind fraud attacks.

• The leading fraud types reported were credit card fraud, account takeover (ATO) fraud, identity theft, and check fraud.

Trending Themes in Fraud

The Alloy report also found “industry leaders are focused on AI, identity, and fraud damages — both reputational and monetary alike.”

Among the trends highlighted by the Alloy report:

• AI hype becomes reality. “AI is no longer just a tool for bad actors,” the report suggested. It added, almost all financial organizations said they currently use AI in the fight against fraud. Some 93% of respondents agreed that machine learning and generative AI will revolutionize fraud detection.

• The cost of fraud keeps climbing. Financial organizations continue to experience significant fraud losses, the report noted. Thirty-one percent of financial organizations lost over $1 million to fraud in 2024, 72% ranked financial loss and client attrition as among the worst impacts, and 73% considered reputational damage to be the most severe fraud consequence.

• Identity is central for fraud prevention. “Leaders are turning to more sophisticated and agile technology to understand customer identity and keep up with evolving fraud tactics. One in every three financial organizations said that implementing an identity risk solution has had the greatest impact on reducing fraud rates at their organization.”

The Current Fraud Landscape

Sara Seguin, principal advisor, fraud and identity risk, at Alloy.

Sara Seguin, principal advisor, fraud and identity risk, at Alloy, noted the Fraud Report, which she had a hand in, continued to raise the alarm about the growing sophistication of financial threats. The most common fraud channel impacting financial institutions is through digital channels, Seguin noted.

Fifty-six percent of mid-market banks and credit unions reported over 1,000 fraud cases — higher than any other sector. From an account takeover fraud perspective, “Our data showed that credit unions (and mid-market banks) experienced more fraud through the contact centers than through their mobile banking apps,” she said.

Seguin suggested this can reveal that credit unions are targeted or lack protection or services to members through the contact center. “But it can also indicate there's an opportunity to strengthen those authentication protocols across channels.”

Artificial Intelligence’ Role

Tommy Nicholas, CEO of Alloy, predicted AI as a fraud prevention tool will continue its upward trajectory in 2025, “fueled by the sheer volume of consumer personal information available on the dark web.”

Nicholas shared, “While headlines may focus on AI as both a tool for fraudsters and a solution for financial institutions, the reality will be more grounded. This year will see fewer overhyped promises about AI and more tangible applications of machine learning to address fraud in real-time.”

He added, rather than relying on standalone AI tools, financial organizations will shift their focus to investing in platforms that centralize identity and fraud risk across their organizations. These holistic solutions will enable financial organizations to unify point solutions, providing a clearer, more comprehensive view of risk.

“This trend began gaining momentum in 2024, but is poised to take off in 2025 as financial institutions and fintechs recognize the dual benefits: reducing fraud rates and improving operational efficiency,” said Nicholas. “Expect the conversation around fraud prevention to move beyond buzzwords as institutions adopt practical, integrated strategies that align technology with broader organizational goals. Machine learning will remain a critical tool, but the real shift will come from how financial institutions reimagine their systems to stay ahead of evolving threats.”