Fraud (and Fighting It) is the Future

By Maisie Bilotti, Sr. Director, Advocacy, MX

Financial fraud is a huge problem in this country, and it’s not going away any time soon. In fact, its continued rise is one of our key predictions for 2025. Fraudsters are often the early adopters of every advancement in technology — so financial institutions and fintech alike need to keep investing to protect their customers from fraud. And, it’s just because it’s the right thing to do. It is essential for customer retention. 

Fraud is Now Part of American Daily Life

The statistics are staggering, and getting worse each year. According to the Federal Trade Commission (FTC), consumers reported losing more than $10 billion to fraud in 2023. This was a 14% increase from 2022.

When I was in the process of purchasing a house in Utah, I almost became part of this statistic. Fraudsters hacked into the email system of the title company we worked with, and spoofed its email with one letter changed in the email address. They sent us wire transfer instructions including the exact, correct amount of money for our down payment. They even had links in the email to a fake version of the title company’s website, with fake phone numbers and emails to contact if we had questions. 

This fraud attempt was so convincing that we hit send and almost lost an unthinkable amount of money to the scammers. Thankfully, our friends at USAA had systems in place to detect abnormalities in the transaction, and put a hold on the transaction until we called them. Let me tell you – nothing inspires institutional loyalty more than an experience like this with a bank. We’ll be USAA customers for life.  

Unfortunately, many Americans aren’t as lucky. A recent study revealed that 30% of Americans have been scammed in the last 12 months, and 40% receive suspicious emails, messages, or phone calls every day. 

While the increased digitization of the financial world makes our lives exponentially easier every year, it also leads to an increase in certain types of fraud. Technology makes it challenging for even the most vigilant consumers and financial institutions to detect and prevent fraud. 

Technology is the Problem…

Traditional Technologies

Phone calls, text messages, and emails are a key access point to consumers that scammers use to illegally gain access to financial data through impersonation, fake email links (phishing), and fraudulent requests for personal information – often tricking individuals into revealing sensitive details such as passwords, account numbers, or Social Security numbers. The ubiquity of these technologies makes them attractive to scammers, who can make hundreds of attempts per day, and only need one hit with an unsuspecting consumer to succeed. 

Generative Artificial Intelligence

Fraudsters now have access to powerful tools like generative AI to make deepfake videos, fictitious voices and fake documents easily and cheaply. A bad actor can mock up a fake image of a government-issued ID in seconds, making traditional methods of identity verification less secure. Generative AI can be used to craft more sophisticated phishing emails, malware, and social engineering attacks, targeting financial institutions and their customers with highly personalized and believable content. 

Quantum Computing

Currently, bank transactions are protected by cryptographic algorithms, better known as encryption technology, which currently ensures the private, safe and secure transfer of your financial data. But according to experts, quantum computers will soon be able to break traditional encryption algorithms — threatening standard security protocols that banks and fintech currently rely on to keep their customers safe. That would also upend security in the cryptocurrency space, requiring Bitcoin and other popular cryptocurrencies to update their protocols to use post-quantum encryption. 

… And Technology (and Awareness!) Is the Solution

So, what chance do banks and fintechs have against these rapidly evolving technologies and emboldened scammers? There is a lot that financial institutions and fintechs can do to protect themselves and their customers from fraudulent transactions.

Continually Educate Your Customers

One of the most important things you can do to support your customers in the fight against fraud is to educate them about it. There are a number of things you can do to develop a robust fraud prevention education campaign: 

• Engage in proactive customer communications that share examples of recent scams
• Conduct fraud awareness campaigns through email and social media, as well as provider educational workshops and seminars 
• Educate your customers on tools they can use to protect themselves like multi-factor authentication and spending alerts
• Educate your customers on common scams and typical entry points (phishing, romance scams, card skimming)
• Partner with government agencies and advocacy groups to expand the reach of your anti-fraud resources 

Modernize Your Systems

Banks must take a proactive, forward-looking approach to counter the growing threats posed by generative AI, advanced email and phone scams, and the emerging risks of quantum computing. These technologies threaten many of the traditional methods of security that we’ve come to rely upon as a society — and all businesses, especially financial institutions, will need to step up their game to meet the new reality.

The adoption of open banking APIs can help mitigate fraud. Secure APIs for financial data sharing provide a significant opportunity to alleviate security concerns and improve the experience for the consumer by offering:  

• Tokenized data connections that take consumer credentials out of the ecosystem where they can land in the wrong hands 
• Reliable access to accurate financial data that is permissioned by the consumer
• Compliance with new regulations that establish industry standards, help protect consumers and ensure consumers have control over their data

Businesses can also leverage AI and machine learning to enhance fraud detection by establishing behavioral baselines for customers, flagging anomalies like unusual spending patterns or login locations. 

Another useful tool is to employ risk-based authentication that can dynamically adjust security protocols based on the context of a transaction (e.g., applying stricter controls for high-value transactions or risky geolocations).

Don’t Go It Alone

Meeting the future needs of fraud detection and prevention will take collaboration across the financial data ecosystem to keep consumers’ data safe. MX provides support in building secure APIs connections, and end solutions like account verification, behavior analytics, and proactive alerts all work in concert to keep a customer’s data safe. Innovative companies like Sardine.ai are providing AI technology to detect fraud are joining the market to help fintech and banks use AI to detect and prevent fraud in cutting edge ways. 

And, public-private partnerships that drive awareness and collaborative execution to fight fraud are gaining traction around the country, including here in Utah. At MX, we’reworking with the Utah Bankers Association to participate in the newly-formed Utah Fraud Prevention Coalition because we know how important this issue is for financial institutions and consumers alike. Partnership across the industry is a key ingredient to effectively fight against fraud and scams. 

Policy Recommendations

There are many ways that the U.S. Congress and federal agencies can help combat fraud and scams. Some key areas of focus should be: 

Consumer Control Over Data Sharing

Americans deserve clarification and enforcement of their data rights as consumers. The final Section 1033 rule is a great starting point for this, but consumers deserve clarity across all their online data. Federal privacy legislation that codifies a consumer’s data rights should be a priority for this session of Congress. Strong privacy protections would not only enhance trust in financial institutions but also empower consumers to take charge of their financial security in an increasingly interconnected world.

Account Verification Requirements

Secure account verification is such a useful tool in verifying that money is going where it’s supposed to go. Implementing robust verification measures reduces the risk of fraud, ensures accountability, and builds confidence in financial transactions. By mandating secure account verification processes for large transfers, financial institutions can prevent fraudsters from exploiting system vulnerabilities and protect consumers from devastating financial losses.

Financial and Data Literacy 

The next generation of Americans would benefit enormously from strong financial literacy programs in schools to educate students about how to manage their money effectively and avoid financial scams. We support legislation like H.R.2943, the Student Empowerment and Financial Literacy Act, which was introduced in the last Congress to establish a competitive grant program to increase financial literacy instruction in elementary schools and secondary schools. But, we also believe that we should consider data literacy the next educational frontier for consumers. 

This will set up the next generation of Americans to understand how to manage their digital data AND make informed financial decisions to build wealth and safeguard their financial futures.

Fraud prevention is a constantly evolving challenge, but with collaboration, education, and innovation, financial institutions, policymakers, and consumers can work together to build a safer, more secure financial ecosystem for everyone. We look forward to playing our part.