More Than Half of Banks Plan to Outsource Fraud Detection
The cost of fraud at U.S. financial institutions is rising, but the deeper threat may be what it does to customer relationships and brand reputation.
Half of all institutions surveyed say fraud has damaged customer loyalty, a finding that reframes financial crime as a strategic business risk rather than a line-item expense.
The 2025 “State of Fraud and Financial Crime in the United States” report, produced by PYMNTS Intelligence in collaboration with Block, surveyed 200 executives at U.S. financial institutions and FinTechs.
The report found that unauthorized-party fraud, fueled by credential theft and account takeovers, now accounts for 71% of all fraud incidents and dollar losses.
That is a sharp reversal from 2024, when such schemes represented just 48% of incidents. Average fraud loss rates across the industry rose to 0.8 basis points from 0.6 basis points, with large banks reporting losses more than four times that average.
Meanwhile, 68% of institutions increased their fraud-detection budgets year over year, a sign that technology spending has shifted from optional to essential.
Three data points from the report illustrate how fraud’s ripple effects extend well beyond direct financial losses:
- Innovation barriers are widespread but uneven. Financial institutions reported an average of 3.9 distinct barriers to modernizing their fraud defenses. Large banks most frequently cited competing innovation demands and integration challenges, each at 66%.
- Regional banks and credit unions pointed to higher data management costs, at 62% and 55% respectively. FinTechs struggled most with technology complexity, at 60%. The path to better fraud prevention looks different depending on the size and structure of the institution.
- A technology gap is forming around AI and behavioral analytics. Roughly 8 in 10 FinTechs and large banks have adopted some form of advanced behavioral analytics. But nearly 1 in 5 institutions overall, particularly smaller and regional banks, still operate without these tools. Fifteen percent of institutions report not using machine learning at all. The divide between technology-forward organizations and those held back by legacy systems is growing.
Institutions are not relying on a single solution. About half of financial institutions plan to expand outsourcing of fraud detection (51%) and increase their use of cloud-based fraud platforms (50%). Forty-four percent are building new in-house systems. Another 40% are investing in deep learning and 37% in machine learning.
The emerging approach is multilayered, combining external expertise, cloud infrastructure and internal development.
The report also highlights the range of pressures institutions face beyond fraud itself. Nearly half cited financial sanctions compliance (47%) and complex regulatory requirements (45%) as top challenges. Forty-six percent pointed to the increased speed of payments, and 41% flagged the expansion of payment types and currencies, including peer-to-peer and cryptocurrency transactions. Thirty-nine percent said customers are increasingly willing to engage in third-party fraud.
The findings paint a picture of an industry managing fraud, regulation and payment modernization all at once, often within systems that were not designed for that level of complexity. The institutions that can balance these demands will be the ones that hold onto their customers’ trust.
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