In the age of AI, banks must redefine fraud prevention

In the arms race between innovation and fraud, financial institutions find themselves fighting a new kind of battle where both sides are powered by artificial intelligence.

The losses from this conflict are staggering. According to recent data from the FTC, U.S. consumers lost $12.5 billion to fraud in 2024, a 25% year-over-year increase. For businesses, the pain was no less acute: new Experian research shows nearly 60% experienced an uptick in fraud incidents.

How can we explain these increases? Once the domain of seasoned cybercriminals, fraud today is accessible, scalable, and increasingly automated. Where yesterday’s phishing scheme or deepfake required time and resources, today’s attackers need little more than an internet connection and a generative AI prompt.

This surge in fraudulent activity is testing even the most sophisticated financial institutions. From account takeovers to payment fraud and stolen identities, the threat vectors are multiplying and, thanks to AI, evolving faster than many institutions can adapt.

A dangerous disconnect

Within this dizzying threat landscape, it’s clear that organizations are struggling to keep up.

The data tells the story: A majority of business leaders (72%) expect AI-generated fraud to be a major threat by 2026, yet only 37% say they are leveraging AI, including generative AI, themselves to detect and protect against fraud. Even with 70% of institutions increasing their fraud prevention budgets, the fact that nearly 60% of companies still saw higher fraud losses in the past year demonstrates a worrying gap between perceived preparedness and actual performance.

While these leaders surveyed represent all types of businesses, the challenges are particularly relevant for financial services. Beyond financial losses, a single high-profile incident can undermine customer loyalty and invite regulatory scrutiny.

Given the risks, what explains the fraud disconnect?

On its face, it's a reliance on security and identity tools that increasingly cannot compete with AI-driven fraud.

But at its core, this disconnect is based in siloed operations, where security and customer experience teams aren’t aligned and where fraud prevention is treated as a problem for the “back office” rather than the entire organization.

Trust is the new currency

Organizations have long treated fraud prevention as a reactive cost center, driven by compliance and at odds with user experience.

That approach is no longer tenable. With AI-driven fraud increasing risks at every customer interaction, now is the moment for institutions to implement the right identity verification and fraud detection tools that reduce risk and enhance the customer experience. The data shows 40% of U.S. consumers say they’re extremely or very trusting of businesses that can accurately identify and authenticate them on a repeated basis.

Indeed, trust is increasingly becoming the new currency of financial institutions. Banks are no longer solely competing on rates or products. They’re competing with their ability to offer secure, seamless, and trustworthy services. Doing this well creates a safer experience for customers that at the same time will actually attract more customers.

A growing number of all consumers (68%) say identity theft is their top fear, and 57% are still concerned about doing things online. As such, demand for strong security is apparent. In fact, 80% of all consumers say they expect companies to take meaningful action when privacy or security concerns arise. But as companies explore new tools to combat the next generation of fraud, they will need to educate their customers along the way. This is especially true when it comes to AI adoption with only 18% of consumers reporting they completely trust AI tools.

This consumer trust gap highlights a critical shift in how banks must approach fraud prevention, as well as secure and seamless access for legitimate users. Institutions that pair cutting-edge security technologies with transparency, a user-first design, and education about how their data is being used, will be the ones that thrive.

From guardrails to growth

When implemented thoughtfully, fraud defenses can go far beyond protection; they can build trust, enable smarter, more inclusive access, and increase customer satisfaction and retention. The solution lies in reframing fraud prevention as a strategic enabler, not a constraint.

With AI-powered fraud, financial institutions must step up their AI defenses. Today’s AI-powered tools can adapt in real time, not only detecting anomalies but also learning from patterns, recognizing legitimate user behavior, and adjusting without manual intervention while proactively mitigating risk at a scale no human-led system can match.

But the human side of the organization must adapt, as well. Finance leaders can no longer shove fraud prevention into the back office and shut the door; they must embed it into product development, user experience, customer service, marketing, and beyond.

For example, today’s customers don’t want to have to choose between a safe experience and a seamless one. The ultimate goal is to create an always-on approach to security that’s constantly learning and as invisible as possible.

Additionally, today’s consumers demand transparency from their banks. They aren’t only interested in how their money is handled, but also how their personal data is collected, used, and safeguarded. Institutions must clearly communicate with customers how they are protecting them from fraud, and how customers can be active participants in fraud prevention.

An opportunity for security, trust, and growth

More than half of businesses today report prioritizing revenue generation over fraud detection (59%), and the number is even higher among retail banks and fintechs. However, this is a false equivalence at best, and shortsighted if not dangerous, at worst.

In the face of AI fraud, banks must think bigger. Fraud and revenue are not competing priorities. They are fundamentally intertwined. Forward-looking leaders will recognize fraud prevention as a competitive advantage to be embedded enterprise-wide not only to deter bad actors, but also to deepen confidence among customers. Institutions that embrace this philosophy will be better positioned not only to contain fraud but also to grow securely, serve inclusively, and foster lasting trust.

By Kathleen Peters, Chief Innovation Officer, Fraud at Experian