Financial institutions lost more than $1m to fraud in 2022, study reveals

By Puja Sharma

Fraud continues to plague financial institutions of all sizes and across all segments. One-third of respondents said they experienced between 1,000 and 10,000 fraud attacks in the last twelve months

Leading Identity Decisioning Platform, Alloy, released a report finding that 27% of respondents lost over $1 million to fraud in the last 12 months. 70% of respondents reported losing over $500K to fraud, with FinTech companies and regional banks being the most likely to report higher losses. 37% of FinTech companies and 31% of regional banks estimated losing between $1–10 million to fraud.

The Annual State of Fraud Benchmark Report surveyed over 250 decision-makers working at financial institutions including community banks, FinTech, crypto, national banks, regional banks, and online lending institutions). The survey ran from September 8-20, 2022, and respondents came from roles across fraud, compliance, risk technology procurement, digital banking strategy, and account opening.

Fraud continues to plague financial institutions of all sizes and across all segments. One-third of respondents said they experienced between 1,000 and 10,000 fraud attacks in the last twelve months. 91% of respondents said fraud has increased year-over-year since 2021.

“Fraud is the highest it’s ever been,” said Tommy Nicholas, CEO and co-founder of Alloy. “Rapid digitization and an influx of cash from pandemic relief scams have created the perfect conditions for fraudsters to thrive. Regardless of sector or size, financial institutions must do more to keep their customers’ assets safe from fraud, but without compromising on the customer experience.”

The report also found that fraud prevention is a costly and time-consuming enterprise for financial institutions: two-thirds of respondents reported that over half of their workforce is working on fraud-related activities. 71% of respondents have increased their spending on fraud prevention YoY. Respondents were also concerned about additional ‘hidden’ costs of fraud such as legal repercussions, regulatory fines, reputational damage, and loss of clients.

According to the report, two-thirds of consumers have filed disputes, and of that subset, nearly 1 in 4 (23%) admitted to participating in friendly fraud. In addition to the rising rate of consumer fraud disputes, the average disputed dollar amount is also higher than last year—increasing 16% to $192.53. This jump signals a more widespread negative impact on businesses’ bottom lines during the remainder of the 2022 holiday shopping season and beyond.

Without effective online fraud prevention in place, lending companies could be about to suffer greatly in the lead-up to Christmas. Unfortunately, huge discounts have given criminals the upper hand this festive season.

Businesses must therefore ensure they are doing all they can to protect themselves and consumers from fraud risks, by implementing technologies that can accurately distinguish between trusted and fraudulent customer behaviour, without interrupting the customer journey. Particularly in the race to onboard and checkout customers during the festive retail season, BNPL payment providers and online retailers must take care not to overlook the potential risks associated with this emerging payment option.

Respondents reported that the main barrier to defending against fraud is automation. 46% of respondents cited a greater need for automation as the most common barrier to being prepared to combat fraud, followed by an absence of dedicated teams for fraud (41%) and the inability to adapt to new threats (39%).