When Charles Harrison, CTO of one of the nation’s largest regional banks, received the latest fraud report, he felt a surge of dread. The numbers were alarming: authorized push payment (APP) scams and account takeover fraud incidents were soaring, with losses skyrocketing and customer complaints flooding social media. The bank’s reputation was at risk, revenue projections were under threat, and regulators were watching closely. 

Charles knew he faced a difficult conversation with the leadership team and his board. He needed approval for significant spending increases to bolster the bank’s fraud detection and prevention capabilities—investments that were critical yet challenging to justify amid already tight financial targets. Further complicating matters, the bank was also incurring substantial costs from reimbursing customers victimized by fraud, amplifying the urgency of his appeal. 

Fraud and scams impose significant and rapidly increasing costs on banks. APP scams trick customers into authorizing payments they believe are legitimate, while account takeover (ATO) fraud and credential theft result in unauthorized access to customer accounts. These issues are magnified by the rise of real-time payments, where funds transfer instantly, giving banks little opportunity to intervene effectively. 

The real cost of fraud 

Authorized push payment, account takeover, and credential theft fraud represent growing liabilities for financial institutions. These scams prey on customer trust, manipulating individuals into authorizing transfers they believe are legitimate. In many instances, banks shoulder the burden, reimbursing customers out of pocket. 

These direct financial losses are only the tip of the iceberg. Banks also incur substantial operational expenses—investigations, customer support costs, remediation efforts, compliance reporting, and regulatory interactions. The hidden costs extend to reputational damage; customers who feel inadequately protected or supported after falling victim to fraud may quickly lose trust, choosing to take their business elsewhere. 

As banks increasingly offer real-time payment platforms such as RTP and FedNow, transaction speed reduces the window available to detect and prevent fraudulent transfers. Banks must be capable of assessing transactions in milliseconds, making detection and prevention exponentially more challenging. 

Moving beyond traditional fraud prevention 

Traditionally, fraud prevention strategies have relied heavily on static rule-based systems, basic monitoring, and post-transaction analysis. But today’s fraudsters quickly learn these rules, devising sophisticated ways to bypass existing controls. 

For banks, the response cannot simply be reactive—it must evolve to become predictive and proactive. The key to success is integrating advanced technologies, improved operational frameworks, and active customer education to collectively reduce fraud’s impact. 

Leveraging advanced technology appropriately 

Artificial intelligence—including both machine learning (ML) and generative AI—offers significant opportunities to strengthen fraud defenses. But banks must avoid positioning AI as a silver bullet. Rather, institutions should see AI as an integrated part of a holistic fraud prevention strategy. 

For example, predictive ML algorithms trained on historical transactional data and customer behaviors can spot anomalies signaling potential scams or account takeovers. These tools rapidly assess a wide array of attributes—geolocation, payment history, and account activity patterns—to calculate a risk score for transactions in real time. When customer accounts suddenly incur high-velocity transfers to unfamiliar accounts, a robust ML-driven risk engine should trigger real-time intervention to stop the fraudulent payments immediately. 

Additionally, behavioral biometrics and advanced authentication methods powered by ML can drastically reduce credential theft. These technologies analyze subtle indicators, such as how customers navigate banking apps, their typing cadence, and device usage patterns. Banks can then detect subtle deviations—such as a session suddenly originating from a new device or network—and prompt additional verification. 

Generative AI can also assist in proactive customer engagement and education. Banks are beginning to use GenAI-driven conversational interfaces and intelligent digital assistants capable of explaining risks clearly to customers, detecting risky behaviors, and offering personalized advice on avoiding scams.  

Strengthening customer awareness and industry collaboration 

Despite technology’s role, customer awareness remains fundamental. A well-informed customer base greatly reduces vulnerability to scams. Banks must actively educate customers on recognizing threats, securing credentials, and responding appropriately to suspicious activity. Personalized alerts, instant notifications, and proactive outreach via digital channels can empower customers, making them active participants in fraud prevention rather than passive victims. 

Another crucial aspect is cross-industry collaboration. Fraudsters often target multiple institutions simultaneously, so shared intelligence about emerging threats is essential. Banks should engage actively in industry consortiums—such as the Financial Services Information Sharing and Analysis Center (FS-ISAC) exchanging fraud indicators, trends, and best practices. 

Regulatory engagement also remains vital. Banks can work proactively with regulators to create consistent, practical standards for fraud liability and reimbursement frameworks, particularly around APP scams. Establishing clear industry standards provides clarity to banks and customers alike, ensuring fairness, reducing ambiguity, and ultimately limiting costly exposure. 

Proactively managing financial impact and liability 

Beyond detection and prevention, banks must proactively manage their financial exposure. This includes exploring options such as insurance and risk-transfer models specifically tailored for fraud-related losses, ensuring comprehensive risk coverage. Banks can also adjust pricing strategies, clearly communicating fraud mitigation costs and benefits to customers, creating transparency around efforts made to protect their assets. 

Investments in enhanced fraud programs need to be viewed not merely as compliance costs but as strategic moves that yield real returns. Better fraud detection can reduce direct financial losses and operational costs. Improved customer experience and protection enhance retention, customer trust, and competitive advantage. 

The path forward for banks 

In preparing to address the board, Charles knew he must clearly articulate the strategic necessity of enhanced fraud prevention. These investments were fundamental to protecting customer trust, preserving the bank’s reputation, and sustaining long-term profitability. Demonstrating the tangible benefits—reduced losses, strengthened customer relationships, regulatory compliance, and competitive differentiation—was key to securing buy-in from stakeholders. 

Facing the board, Charles presented a compelling vision. The bank’s investment in advanced technology, customer-centric engagement, robust industry collaboration, and strategic financial risk management would significantly mitigate fraud impacts. The decision to act decisively now would not only protect the bank’s financial health but reinforce its commitment to securing its customer’s financial futures. Leveraging AI smartly, engaging customers actively, sharing intelligence across institutions, and proactively managing financial risks can significantly reduce the cost of fraud. In doing so, banks protect their bottom lines, safeguard customer trust, and reinforce their commitment to secure, innovative financial services. 

For banks navigating today’s fast-moving payment landscape, the question is no longer whether to augment their fraud prevention strategies, it’s how quickly and effectively they can act.