Risks have grown as more financial activity happens online and personal data moves across apps, devices, and networks.
Fraud prevention in banks is no longer just a security concern, it’s an operational priority.
Risk and fraud teams are under pressure to detect anomalies faster, reduce false positives, and maintain seamless customer service, all without overwhelming their core systems or back-office teams.
In this article, we'll explore how banks can stay ahead of modern threats and how solutions like VALID Systems set the new standard in fraud defense to help you stay safe.
What is fraud prevention in banking?
Fraud prevention in banking involves various strategies, technologies, and safeguards designed to detect and stop fraudulent activity before it causes harm. These efforts include spotting suspicious activity, verifying identities, blocking unauthorized access, and tracking account behavior.
When we consider that 79% of organizations faced payment fraud attempts in 2024, it's clear that fraud is not rare.
Fraud prevention is the foundation of modern banking on multiple levels:
- Protecting against financial loss: Fraud can cause significant damage to the bank and its customers. A strong prevention system helps spot and stop suspicious transactions early, limiting fallout and minimizing losses.
- Preserving customer trust: Every fraud incident chips away at confidence. Security is one of the most important factors in customer loyalty. When people feel their money and personal information are safe, they're far more likely to stay with a bank long term.
- Staying compliant with regulations: Financial institutions face strict rules related to fraud, money laundering, and terrorism financing. A well-designed fraud prevention framework helps meet these standards and avoid fines or legal consequences.
- Safeguarding reputation: One major fraud incident can damage a bank's public image overnight. On the other hand, a reputation for security reinforces the bank's standing as a trusted and reliable institution.
Common bank fraud scenarios and emerging threats in 2025
Fraudsters now mix old-school schemes with new tactics powered by data breaches, social engineering, and instant payments. Here are the major threats banks face in 2025:
Check fraud
Despite digital banking's growth, paper check fraud is surging. Criminals steal checks, alter names or amounts using a tactic known as check washing, and deposit them via mobile, ATM, or in person. Outdated verification makes these altered checks hard to catch and costly to banks.
The numbers paint a clear picture: 94% of bank leaders say their institution or its customers were directly affected by check fraud in the past 18 months.
And with check fraud attempts continuing to rise sharply, industry experts estimate total losses could hit $30 billion by 2025.
Synthetic identity fraud
Synthetic identity fraud is widely considered the fastest-growing financial crime in the U.S. It involves combining real and fake information to create entirely new, believable identities.
These "ghost" profiles often pass verification checks, open bank accounts, and gradually build credit, only to eventually default on large loans or be used to launder money. Because there's no real victim to report the fraud, it often goes undetected until it's too late.
The financial impact is massive. U.S. banks lose an estimated $6.3 billion annually to synthetic identity fraud, with each fake account costing an average of around $15,700.
Account takeover (ATO)
Billions of leaked credentials have made account takeover fraud alarmingly easy. Fraudsters use phishing, credential stuffing, and SIM swaps to hijack accounts, steal funds, and operate as legitimate users.
The scale of the threat is growing fast. ATO attacks surged by 24% in 2024, underscoring how quickly these tactics evolve.
83% of organizations experienced at least one ATO incident in the past year, while 24% of consumers reported being victims in 2024, up from 18% the year before.
Real-Time Payments (RTP) and Authorized Push Payment (APP) scams
Instant payment systems like RTP, FedNow, and Zelle offer speed, but that speed also benefits fraudsters.
Scammers trick victims into willingly sending money, posing as bank staff, service providers, or trusted contacts. Users approve authorized push payment (APP) scams themselves, which makes it hard for them to stop since the payments settle instantly.
Business Email Compromise (BEC)
Business email compromise (BEC) is one of the most costly types of fraud.
Fraudsters impersonate executives or vendors to trick companies into sending large wire or ACH transfers. Banks often process these fraudulent transactions.
Despite years of awareness, BEC remains the top fraud method, with 63% of organizations reporting it as their biggest threat. Preventing it requires better verification and regular client education.
Why traditional fraud controls are no longer enough
Legacy tools handled slower, more predictable threats. Today's fast-moving scams slip past them with ease.
What's keeping banks vulnerable:
- Outdated rules: Fraudsters adapt faster than fixed rules can respond and bypass static thresholds.
- Manual processes: Manual reviews bottleneck transaction queues and cause alert fatigue.
- Siloed systems: Fraud operations teams struggle when check systems, ACH/wire systems, and identity tools aren’t unified leading to risk signals getting lost.
- Weak authentication: Single-factor logins and outdated ID checks make it easy for attackers to use phished credentials, intercepted OTPs, or deep-fake documents.
- There is no time to react: With funds clearing instantly, fraud detection must be just as fast. Once users send the money, banks lose the chance to stop it.
- Human errors and social engineering: Weak internal controls and phishing attacks can lead to major breaches even with good tools.
- Compliance and resource strain: Smaller banks may lack the tech or teams needed, and strict privacy laws limit data sharing for fraud analysis.
Actionable fraud prevention strategies for banks
Let's shift from theory to practice. Here's how you, as the bank, can stay ahead of modern frauds:
1. Build an AI-enhanced multi-layered security framework
A layered defense remains the foundation of any resilient fraud strategy, especially when improved with AI.
Intelligent systems can assess risk at each layer in real time, adjusting defenses based on context and behavior.
For example, a high-risk business transaction might automatically trigger AI-driven risk scoring, followed by a call-back verification or dual authorization by two staff members.
Best practices include:
- Combine multi-factor authentication (MFA), biometric logins, device/browser fingerprinting, and behavioral analytics.
- Monitor login attempts for device usage, location, timing, and behavior inconsistencies.
- Review FFIEC risk-based authentication guidance regularly to determine which customer segments or transaction types warrant additional scrutiny.
Tip:
VALID Systems' INclearing Loss Alerts apply behavioral analytics during the clearing process to spot irregularities as they happen. By catching unexpected activity early, the system helps identify potentially fraudulent checks before they result in losses.
2. Shift to real-time transaction monitoring
Instant payment systems (like RTP, Zelle, and FedNow) do not allow for delayed reviews. An AI-powered bank must detect fraud as it happens, not after the money's gone.
Action steps:
- Integrate fraud scoring directly into your transaction workflows (especially for wires, checks, and real-time payments).
- Set dynamic rules that adapt based on transaction context, user behavior, and device risk.
- Create escalation protocols that allow your system to pause or hold transactions pending verification.
Tip:
VALID Systems Real-Time Loss Alerts (RTLA®) screens check real-time deposits across mobile, ATM, and in-branch channels. It flags suspicious items immediately and helps stop altered or stolen checks before they clear.
3. Use machine learning to detect the undetectable
Static rules like "flag all transfers over $5,000" are predictable and effortless to break.
Machine learning models, on the other hand, identify subtle, nonlinear risk patterns that static thresholds miss.
To get started:
- Train models on historical fraud data, high-risk behaviors, and verified safe transactions.
- Run ML models in parallel to your existing rule-based systems before transitioning to automated decision-making.
- Monitor performance regularly, retraining to reduce false positives and keep up with new tactics.
Tip:
Build internal guidelines around explainability, accuracy, retraining frequency, and compliance alignment, especially if you're subject to audits or must document risk decisions.
4. Strengthen identity verification at the onboarding stage
The onboarding stage is your first and best chance to stop fraud before it starts. Weak identity checks leave the door open for bad actors to slip through.
Modern onboarding strategies should include:
- Government-issued ID verification with liveness detection to prevent deepfake or replay attacks.
- Email and phone number ownership validation.
- Behavioral analytics during onboarding to detect bot-driven or abnormal data input patterns.
- Checking applicant data against fraud consortiums and known-risk databases.
Tip:
Strengthen customer service training, including mandatory verifications on high-risk transactions, even during inbound calls.
5. Collaborate and share data across the industry
Fraud isn't isolated - it moves between banks, fintech, and geographies. One device or identity might hit three institutions in a single day. That's why fraud prevention must become a collaborative effort.
Key initiatives include:
- Joining fraud consortiums to share anonymized data such as IPs, devices, mule accounts, and synthetic identities.
- Aligning internal teams (fraud, AML, cyber risk, operations) to share insights in real time.
- Participating in industry alerts, threat intelligence platforms, and regulator-led working groups.
- Establishing clear legal and privacy frameworks for interbank data sharing.
Tip:
VALID is built for collaborative intelligence. The platform supports integration with consortium data sources and fraud networks, allowing banks to enrich their detection models with external insights without violating privacy regulations.
6. Automate high-risk transaction review and case management
With transaction volumes rising, manual reviews can't scale. At the same time, over-automation without context leads to alert fatigue and missed threats.
The solution is smart automation, automated where it can be, human-guided where it matters.
Best practices:
- Triage alerts using AI scoring models and behavioral flags.
- Allow the system to auto-clear low-risk actions and auto-block obvious high-risk attempts.
- Provide fraud analysts detailed case summaries, including origin, triggers, and recommended actions.
7. Treat customers as part of the defense
Fraud prevention isn't just an internal job.
An informed customer base can act as an extension of your fraud defense – they are less likely to fall for scams and more likely to report suspicious incidents.
Key strategies:
- Deliver proactive education about scams (phishing, impersonation, romance scams, crypto traps).
- Offer real-time alerts and confirmation messages for sensitive actions (e.g., wire transfers, account changes).
- Provide self-service fraud controls, such as spending limits, travel alerts, and biometric access preferences.
Tip:
VALID Systems' Fraud Trend Analytics monitors evolving fraud patterns across transactions and surfaces key insights for financial institutions. These insights help banks fine-tune internal training programs and proactively educate customers about emerging threats.
What Ops Teams Need from a Fraud Platform
Here’s what operations teams should look for in a fraud prevention platform that actually works in day-to-day banking environments:
- Low disruption to teller/branch operations
- Easy integration into deposit ops, loan ops, and fraud case management systems
- Actionable alerts that don’t create noise
- Real-time scoring with audit trail for compliance
- Support for clearing-stage risk - not just front-end detection
Why VALID Systems is a leading choice for fraud prevention in banks
With over 20 years of experience in risk decision-making and deep expertise in fraud detection, VALID helps financial institutions prevent losses before they happen.
Trusted by major players like PNC Bank, TD Bank, and Truist, VALID processes more than $4 trillion in annual check volume, but its fraud prevention capabilities go far beyond checks.
What sets VALID Systems apart:
- Real-Time Loss Alerts (RTLA®): Instantly flags suspicious activity across mobile, ATM, and in-branch transactions, allowing banks to stop fraud as it happens, not after the fact.
- InstantFUNDS©: Enables sub-second decision-making for check deposits while balancing fraud risk and customer convenience with guaranteed funds availability.
- InteliFUNDS©: Accelerates legitimate transactions while isolating and holding those with risk indicators, reducing operational stoppages without sacrificing security.
- INclearing Loss Alerts: Uses AI and behavioral analytics to detect abnormal patterns during transaction processing, identifying threats that traditional systems often miss.
- Valid Fraud Consortium Edge: A shared data network built from partnerships with top U.S. banks, giving your institution access to wider fraud insights and emerging threat patterns, without compromising privacy.
Why do banks trust VALID?
VALID Systems doesn’t just detect fraud - it strengthens your fraud operations. From reducing investigation times to eliminating unnecessary holds, VALID streamlines how banks identify, act on, and recover from risk.
That’s why operational teams at institutions like PNC and Truist trust VALID to protect workflows and customers alike.
VALID provides the infrastructure to:
- Detect threats earlier
- Reduce false positives
- Comply with evolving regulations
- Empower analysts with better data
- Ultimately, protect your institution's reputation and bottom line
Ready to modernize your fraud defense strategy?
Schedule a consultation to learn how VALID Systems can help your team act faster, investigate smarter, and confidently prevent losses.