Download the latest Embedded Finance Tracker®, a Galileo and PYMNTS collaboration.

When combating the threat of digital banking and payments fraud, financial institutions (FIs) face a difficult balancing act; they must ensure their customers’ funds and data are protected while preserving the fast, seamless digital financial experiences that today’s consumers demand.

Striking the right balance is critical. As payments fraud attempts continue to increase–and grow ever more sophisticated–the potential losses to financial institutions have risen accordingly. In a January 2024 study by BioCatch, 56 percent of financial risk management leaders polled reported an increase in fraudulent activity in 2023, and 43 percent expect fraud attempts to increase again in 2024. The BioCatch study also found that 58 percent of risk leaders said their organization spent between $5 million and $25 million investigating and rectifying instances of fraud in 2023. 

At the same time, consumers increasingly expect highly convenient financial experiences–and are willing to abandon financial institutions that can’t provide such convenience. Thirty-seven percent of retail banking customers reported abandoning a new bank account application, with 47 percent of those who did so citing an overly tedious account-opening process as the reason, according to a September 2023 study by The Entrust Cybersecurity Institute. 

How to Fight Payments Fraud while Preserving a Positive UX

Faced with these competing priorities, banks must leverage the right mix of tools and tactics to deliver convenient, seamless digital banking experiences while maintaining robust security,   

Here are five key tips for FIs seeking to strike this critical balance:

1. Start small, scale smart 

Banks must leverage artificial intelligence and machine learning-based anti-fraud solutions for real-time transaction monitoring and adaptive fraud detection. However, these and other advanced technologies should be deployed in a phased manner, first using sandbox environments to ensure scalability and data protection without risking core operations. Once piloting is underway, FIs should track success metrics such as fraud detection accuracy and reduction in false positives to assess the value proposition of broader implementation.

2. Leverage behavioral biometrics

FIs can use behavioral biometrics such as typing patterns and navigation habits, which are difficult for fraudsters to replicate, to analyze real-time user interactions. Once deployed, banks should evaluate the efficacy of such tactics by assessing reductions in account takeover incidents and improvements in user experience.

3. Adopt zero-trust architecture 

Banks should adopt a zero-trust security model, in which every transaction, request and user interaction is continuously verified in real-time. This approach ensures that all user interactions are authenticated and authorized, substantially minimizing the risk of breaches and enhancing overall security. This framework can first be applied to critical systems and gradually expanded across the organization. 

4. Gamify fraud prevention education and transparency

Educating customers is a critical factor in a robust anti-fraud program. Banks can increase security awareness by offering interactive and engaging educational modules on digital fraud prevention. This content can be delivered via mobile apps and online platforms, incentivizing the learning process with rewards for completing educational activities. FIs should emphasize transparency by communicating how customer data will be utilized to enhance security and encourage ongoing dialog and customer feedback.

5. Partner with anti-fraud experts 

Banks don’t need to fight fraud alone–nor should they. Instead, FIs must build strategic relationships with fintechs that specialize in fraud detection and prevention. These collaborations offer banks access to the latest technology, expertise and bespoke customer service, driving a more comprehensive and agile fraud prevention program.

How Clients Can Mitigate Risk from Fraud with Automated Incoming ACH Screening

Want to learn more?

For more on how banks are using the latest strategies and tech to stay ahead of fraudsters,  download the latest Embedded Finance Tracker®, a Galileo and PYMNTS collaboration.