A community bank approves a transfer, confident that its fraud controls are working. Hours later, it discovers that the request came from a deepfake video call, and the money is gone.
Stories like this capture the dilemma: some executives still treat fraud as a problem technology and training can “fix,” while others see it as an uncontrollable cost of doing business.
Fraud losses are increasing, from $16.6 billion in the U.S. last year alone to billions more globally, as criminals exploit instant payments, crypto, and AI-powered deception.
This guide breaks down what modern fraud risk management looks like today: the frameworks financial institutions rely on, the tactics that actually reduce losses, and the tools that give banks, credit unions, and fintechs the upper hand.
Fraud risk management (FRM) is the proactive, enterprise-wide program for identifying, assessing, and mitigating the risk of fraud, whether from external criminals or internal actors.
It differs from generic internal controls by focusing specifically on fraud schemes and patterns. Put simply, FRM is to fraud what cybersecurity is to cyberthreats: a structured, cyclical process of prevention, detection, response, and recovery.
In practice, fraud risk management (FRM) encompasses all forms of financial wrongdoing that can harm an institution or its customers. Common examples include:
Effective FRM programs weave these elements together: governance and oversight, risk assessments, policies and controls, data-driven detection, and rapid response protocols. Crucially, no two organizations face the same risks. As ACFE emphasizes, “there is no one-size-fits-all approach to managing fraud risk.” Each bank, credit union, or fintech must design a strategy tailored to its business model, customer base, and threat landscape.
Fraud has always been part of financial services, but losses are now hitting new records.
Three forces are driving today’s surge:
The takeaway is clear: without strong fraud risk management, financial institutions face escalating losses, regulatory scrutiny, customer attrition, and lasting reputational damage.
Fraud risk management is complex, and institutions often encounter similar hurdles:
For example, mobile remote deposit capture (RDC) has struggled to catch counterfeit or altered checks because the imaging process isn’t cross-referenced with other account activity, allowing fraudsters to exploit gaps.
Criminals evolve constantly, exploiting the weakest points in payments, onboarding, and customer trust. The institutions that win are those that treat fraud not as an operational headache but as a strategic risk with a structured defense.
This framework provides financial institutions with a structured approach to mitigate losses, safeguard customer interests, and outmaneuver fraudsters:
Without leadership buy-in, even the best fraud tools underperform. Management ensures fraud risk is not buried in compliance checklists but treated like credit or liquidity risk - visible, measurable, and discussed at the highest levels. A strong governance model creates accountability, aligns fraud controls with strategic goals, and signals to regulators and customers that fraud is taken seriously.
Institutions that fail to clearly map their risks often end up spending on ineffective defenses.
A modern risk assessment identifies where fraud is most likely to occur and where it will have the greatest impact. This isn’t a one-time project but an evolving process that adapts to new payment rails, customer behaviors, and criminal tactics.
Prevention is always cheaper than recovery. But prevention can’t be static; criminals adapt too quickly.
The key is layered defenses that combine process (dual approvals), technology (device fingerprinting), and customer education. Done well, preventive controls protect both the institution and the customer while minimizing friction.
With InstantFUNDS, banks and credit unions can release legitimate deposits instantly while holding risky ones for review. This dual-track approach stops fraud before funds clear while delivering the frictionless experience customers expect, a balance that few institutions achieve without advanced fraud intelligence.
Instant payments, RDC, and mobile banking operate 24/7, which means fraud detection must be constant, intelligent, and fast. The right monitoring system catches anomalies before they become charge-offs, while also minimizing false positives that slow down legitimate customers.
VALID’s analytics power CheckDetect, which identifies more than 75% of potential check-deposit charge-offs at the point of deposit. The same intelligence extends across rails, producing sharper alerts and far fewer false positives. Investigators spend less time chasing noise and more time stopping actual fraud.
Even the best-prepared institutions will face fraud attempts.
The difference between a minor incident and a significant loss lies in how fast and how well the organization responds. A defined, rehearsed playbook ensures that everyone knows their role when fraud occurs, and that recovery efforts start immediately.
Fraud is an ecosystem challenge. Criminals move across banks, fintechs, and payment rails, exploiting gaps in visibility.
Collaboration and intelligence-sharing are the force multipliers that give institutions the power to anticipate new attack patterns and stop fraud before it spreads.
Through the VALID Edge Data Consortium, institutions gain visibility into over 450 million accounts and more than $4 trillion in annual transactions. These shared data attributes and predictive features provide an edge against fraud, enabling participants to block mule accounts earlier and detect cross-institutional patterns that would be invisible in isolation.
Technology is central to modern FRM. Manual reviews and static rules alone can’t keep up with high-volume, fast-moving fraud attempts.
Key tech tools include:
AI and ML can spot subtle patterns in transactions. For example, ML models can detect when an account’s behavior suddenly deviates (odd location, unusual merchant, atypical purchase size) and flag it faster than human monitors.
Banks use AI-driven fraud engines for card transactions, wire transfers, and now instant payments. Some institutions even employ advanced AI (including large language models) to analyze communications.
Because money can move instantly, many FIs use immediate alerting. This includes sending push notifications, texts, or calls to customers for out-of-pattern transactions, or enabling customers to freeze cards/payments instantly via apps. Some banks allow customers to set limits or “allow lists” on beneficiaries.
On the institutional side, automated alerts from the fraud engine prompt analysts to act in real time (e.g., blocking a wire before it goes out). This rapid alert-and-response reduces losses significantly.
For example, VALID Systems reports that implementing real-time check fraud alerts (CheckDetect) enabled a U.S. bank to prevent 85% of attempted check fraud and cut check-related losses by 73% in three months.
These are systems that integrate multiple fraud controls and data sources into one “decision center.” For instance, they can route a suspicious transaction through layered checks (device ID match, velocity check, sanctions list, negative news search) and then assign a risk score. The orchestration platform decides on the fly whether to approve, decline, or escalate for review, based on business rules and risk thresholds.
Beyond real-time tools, technology also supports retrospective analytics. For example, link analysis tools build networks of related transactions (revealing mule accounts or layered laundering). Natural language processing can scan unstructured data (call transcripts, emails, social media) for fraud clues.
Fraud always exists, but institutions can contain it. By pairing innovative management with real-time scoring, cross-channel intelligence, and consortium data, financial institutions can shift fraud from a persistent drain into a controlled risk.
VALID Systems equips banks, credit unions, and fintechs to protect customers while strengthening the bottom line.
Fraud risk management today is about one thing: acting before losses hit the books. This is where VALID Systems delivers measurable impact with:
Make fraud risk management proactive, not reactive.
Learn how VALID Systems empowers institutions to detect and stop fraud before it becomes a loss.