#United States #Atlanta #LexisNexis #Financial Institutions #Fraud Costs

The Burden of Fraud on Financial Institutions

Fraud presents a growing challenge to financial institutions across North America, with recent findings from the LexisNexis® True Cost of Fraud™ Study 2025 illustrating just how severe the issue has become. In the study, conducted among 507 risk and fraud executives in the financial services sector, the results highlight an unsettling reality: for every dollar lost to fraud, financial institutions incur an additional cost of $5. This rising fraud multiplier has escalated by 25% since 2021, indicating a clearer need for advanced solutions.

The report reveals that a staggering 44% of North American financial institutions predominantly rely on manual processes, showing reluctance to fully implement automation and AI technologies that can better combat fraud. This hesitance places them at a significant disadvantage, especially with an increase in sophisticated fraud tactics.

Key Findings from the Study

The LexisNexis report identified several critical factors contributing to the rampant growth of fraud within North America’s financial institutions:

• - Fraud Vulnerabilities at Every Stage: Fraud can manifest at multiple stages of the customer journey. The study pointed out that 30% of fraud incidents occur during new account creation, 31% during transactions, and the remainder during account logins or access. Such vulnerabilities create significant risks for institutions that fail to robustly monitor these critical points.

• - Insufficient Tracking: Alarmingly, only 45% of institutions maintain comprehensive tracking systems for fraud that spans both payment methods and transaction channels. Meanwhile, 25% track only transaction channels, and 28% focus solely on payment methods, leading to potential underreporting and misunderstanding of the real losses caused by fraud.

• - Increased Threat from Bots and Scams: Scams have emerged as a formidable threat, accounting for 38% of total fraud losses for U.S. lenders and 36% across all financial institutions. Moreover, the prevalence of malicious bots has escalated with 44% of respondents highlighting bots as a significant obstacle in verifying identities.

• - Mobile Fraud Risks: The study also pointed out that mobile fraud has surged, constituting over a third of total fraud losses. Convenient mobile services have made financial institutions particularly vulnerable, with 70% of U.S. organizations reporting a notable increase in mobile fraud over the past year.

Customer Churn Versus Fraud Prevention

Another troubling statistic surfaced in the report: the measures used to prevent fraud are inadvertently leading to increased customer attrition. Over the last year, 71% of U.S. lenders and 78% of Canadian lenders have reported heightened customer turnover due to their fraud prevention tactics. This reveals an essential challenge—while protecting against fraud is crucial, preserving a seamless experience for genuine customers is equally vital.

The Path to Solutions

To remain competitive, the report advises institutions to adopt a proactive stance against fraud. Those organizations labeled as 'fraud-mature'—which utilize automation, AI, and multi-channel visibility—have reported a reduction in customer loss by as much as 29% in the past year. These systems not only empower financial institutions to detect fraud swiftly but also maintain positive experiences for legitimate customers.

Conclusion

As the landscape of fraud continues to evolve, it is clear that North America's financial institutions must modernize their strategies. While challenges abound, the adoption of advanced tools and proactive measures offers a pathway to protect not only their finances but also their reputation and customer trust. The findings of the LexisNexis True Cost of Fraud Study 2025 serve as a clarion call for an industry increasingly plagued by fraudulent activities.