Across the globe, the growing adoption of digital payments is fueling an innovation boom. As the industry expands, so does the threat of fraud, costing businesses, financial institutions and individuals hundreds of billions of dollars annually.
Fraudsters are becoming more sophisticated, leveraging AI-generated deepfakes, synthetic identities and real-time payment (RTP) scams to outsmart traditional security measures. Financial institutions must continuously refine fraud detection techniques, strive to detect anomalies and strengthen collaboration with industry peers and regulators to prevent, detect and respond to emerging threats in real time.
The ever-rising threat of financial crime in cross border payments
With the payment solutions market expanding, malicious actors are also adapting. They’re enhancing existing tactics and perusing the latest technological solutions to devise new schemes to defraud businesses, consumers and governments.
“For years, banks have focused on understanding and technological advances of detecting fraud,” Karen Boyer, SVP and Director of Fraud Intelligence at M&T Bank, says on the Converge podcast. “Fraudsters quickly adapted, noticing that often the weakest link is the human.”
What’s fintech fraud?
Fintech fraud refers to any deceptive or illegal activity within the financial technology (fintech) industry. Fintech companies are particularly vulnerable to fraud because their solutions are easy and convenient to use and they handle sensitive data, such as banking details or transaction histories. This makes it harder and more important for fintech companies to protect user data and prevent unauthorized access, breaches or fraud. Leveraging advanced technologies and robust security measures is crucial in safeguarding against these threats.
Fraud by the numbers
Today’s fraud economy is thriving. Financial crime is organized, automated and scalable.
According to the Nasdaq Verafin Global Financial Crime Report, an estimated $3.1 trillion of illicit funds flowed through the global economy in 2023. This accounts for approximately 3% of total economic activity. Scams and other financial fraud schemes are among the leading causes of significant financial losses for both individuals and institutions — they are estimated to amount to $485.6 billion.
In the US alone, financial fraud costs the economy $138.3 billion. Adding those losses back would have boosted economic growth by more than 0.5%, lifting annual GDP growth to over 3%.
In 2024, the volume of fraudulent transactions and dollars lost to fraud grew at a faster rate than in the previous year. The share of fraud stemming from scams rose by 56%, while the losses rose by 121%. Now, banks report scams as the most common form of fraud, accounting for 23% of all fraudulent transactions.
Who’s affected by financial fraud?
The short answer is — everyone. In 2024, 60% of financial institutions and fintechs reported increased fraud. Enterprise banks reported the most fraud growth, at nearly 70%.
The good news is that, according to Alloy’s 2025 State of Fraud Report, many financial institutions are now better equipped to recognize fraudulent transactions. Nearly all decision-makers (99%) are ramping up efforts to detect attacks using some form of machine learning or artificial intelligence (AI) to protect all stakeholders.
Key trends
Just as technical innovation is improving fraud detection and response, it also makes fraud increasingly sophisticated and better at exploiting vulnerabilities.
Malicious AI-powered tools are readily available for purchase on dark web marketplaces, Telegram and even mainstream social media platforms, and bad actors can perpetrate large-scale scams with minimal effort.
Fraud is appealing: “Detection is relatively low, the payout is big, and fraud is perceived to be part of the cost of doing business,” David Maimon, Head of Fraud Insights at SentiLink, explains. “So why not?”
Some of the most pertinent types of fraud in 2025 include:
Synthetic identities
A synthetic identity is a mix of real and fake information. It’s a made-up person with enough credibility to open bank accounts, get loans, send payments and disappear with stolen funds. Synthetic identity theft occurs when fraudsters combine stolen personally identifiable information (PII), such as a Social Security number, with a fabricated name or birthdate to bypass identity verification.
Because synthetic identities contain legitimate data, they often evade traditional fraud detection systems.
To combat synthetic identity fraud, financial institutions leverage advanced machine learning algorithms to help verify identities from various additional sources. They also join anti-fraud networks to access a shared database of fraud reports.
Fraud-as-a-Service (FaaS)
FaaS has become an industry, now thriving on a global scale. With generative AI, fraudsters-for-hire can effortlessly streamline account openings, manipulate screen layouts and automate onboarding, perpetrating fraud across multiple financial institutions.
Seventy-one percent of financial institutions reported that organized crime rings perpetrated the majority of fraud attempts aimed at their organizations.
Social engineering and deepfake scams
Business email compromise (BEC) is a type of phishing or social engineering attack in which a fraudster tricks the victim into sending money or sharing sensitive information by pretending to be a boss, a trusted colleague or a business partner. BEC scams and account takeovers (ATO) often employ a sense of urgency to mislead the victim, obtain their login credentials and gain unauthorized access to financial accounts.
Fears that generative AI images, videos and audio clips would unleash a tsunami of fraud have not yet come to fruition. However, deepfake tools are rapidly evolving and expected to grow substantially.
Since phishing scams and social engineering attacks exploit human behavior rather than technical vulnerabilities, awareness and education remain the most effective defense tactics against this type of fraud.
Payments fraud
Real-time payment fraud and authorized push payment (APP) fraud are two types of scams commonly seen with digital payments. Criminals use stolen credit card information or hijacked online payment accounts to complete unauthorized transactions. While they are distinct in principle, APP fraud often employs RTP systems for the same reason consumers and businesses love them — their convenience and immediacy. The biggest challenge with this type of fraud is that there’s no “undo” button: Once money is sent, it’s gone.
Fraudsters can gain access to an account or exploit RTP infrastructure to steal money, but they most often use social engineering to convince victims to authorize payments they can’t reverse.
Through a multilayered approach of communication, education and technology, financial institutions and fintech companies can help mitigate the impact of payments fraud.
Fighting fraud with innovation and collaboration
Alongside traditional financial institutions, the fintech sector deploys innovative solutions, such as AI-powered fraud detection tools that discover anomalies in real time, enhance biometric authentication and secure open banking frameworks. Blockchain and distributed ledger technology help fintech companies address the challenges of cross-border payments, offering transparency and traceability, reducing fraud risk and enhancing security.
By embracing next-generation fraud prevention strategies, fintechs can stay ahead of financial criminals and build a more secure digital finance ecosystem.
Fraud prevention and detection strategies
To prevent and detect fintech fraud, companies should follow these 10 best practices:
- Strong authentication processes: Implement strong authentication mechanisms such as multi-factor authentication (MFA), biometric verification and strict password policies to make unauthorized access much more difficult.
- Advanced encryption: Encrypt data at rest and in transit with strong, up-to-date encryption standards to ensure that data cannot be easily understood or misused.
- Fraud detection systems: Use AI and machine learning to detect and prevent fraud in real time by analyzing transaction patterns and flagging anomalies.
- Regular security audits: Conduct regular audits of security infrastructure to identify and address vulnerabilities before attackers can exploit them.
- Employee training: Hold regular employee training sessions on the latest fraud prevention techniques and security best practices to prevent human error.
- Secure software development practices: Prioritize security at every stage of software development to prevent vulnerabilities.
- Transaction limits and alerts: Set limits on transaction sizes or frequencies to mitigate the impact of fraud.
- API security: Secure APIs with proper authentication and encryption and limit data access based on user or service roles.
- Monitoring and response: Build a dedicated team to monitor for signs of fraud and respond quickly to minimize damage.
- Customer education: Educate customers about fraud risks and safe practices to help prevent them from falling prey to phishing or other forms of social engineering.
The role of user education
User education plays a crucial role in preventing fintech fraud.
By educating consumers — and employees — about the risks of fraud and how to protect themselves, fintech companies can reduce the likelihood of successful fraud attempts. They can do this by providing insights into common types of fraud, such as phishing and social engineering, and offering tips on detecting and preventing these types of attacks.
Empowering with knowledge helps create a more secure financial environment and reduces the overall impact of fraud.
Regulatory requirements for fintech fraud prevention
Fintech companies must comply with various regulatory requirements designed to prevent fraud and protect consumer data. These requirements may include:
- Know Your Customer (KYC): Fintech companies must verify the identity of their customers and maintain records of this information.
- Anti-Money Laundering (AML): Fintech companies must implement measures to detect and prevent money laundering activities.
- Payment Card Industry Data Security Standard (PCI DSS): Fintech companies that handle payment card information must comply with PCI DSS requirements to ensure the secure storage and transmission of this data.
- General Data Protection Regulation (GDPR): Fintech companies that handle personal data of EU citizens must comply with GDPR requirements to ensure the secure storage and transmission of this data.
By following these best practices and complying with regulatory requirements, fintech companies can reduce the risk of fraud and protect their customers’ sensitive information.
Payments fraud detection: Strategies to detect anomalies
Real-time payments call for real-time fraud detection. Using machine learning algorithms and AI, the latest tools can screen cross-border real-time payments before a payment request reaches the bank.
For example, machine learning models can analyze user behavior or device-specific information to verify a user’s identity and create a unique profile for each user. This can help detect an account takeover or APP fraud in real time.
Adding APIs to the payment platform can help keep financial institutions safe from fraud damage. APIs can automate security, regulations and sanctions screenings, identify anomalies and block suspicious payments.
Why collaboration is key to stopping financial crime
Even with the most advanced tools, fighting fraud is no easy task. A culture of transparency is essential — without openly sharing information about fraud incidents, businesses remain vulnerable.
In the US, for example, there’s no unified jurisdiction, so a business can file a fraud complaint in six or seven different places.
This fragmentation makes cross-border payment operations particularly challenging, as fraudsters tend to adapt quickly to new paradigms. For financial institutions, the solution often lies in greater collaboration and the trend towards open data.
In response, fintech organizations have been forming fraud data sharing consortiums, such as Sonar, allowing banks and other financial institutions to verify whether their customer data has been compromised in a breach or used for fraudulent activities.
As the global commerce and cross-border payments ecosystem expands, so does the awareness that its participants and stakeholders must work together to combat financial crime.
Want more insights on the topics shaping the future of cross-border payments? Tune in to Converge, with new episodes every Wednesday.
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