The State of Fraud in Banking
In this episode of The Purposeful Banker, Jim Young welcomes Sara Seguin from Alloy to talk about some of the important takeaways from Alloy's 2025 State of Fraud Report.
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[Report] Alloy's 2025 State of Fraud Report
[Solution Information] Q2/Alloy
Transcript
Jim Young
Hi, and welcome to The Purposeful Banker, the leading commercial banking podcast brought to you by Q2, where we discuss the big topics on the minds of today's best bankers. I'm your host, Jim Young, senior content strategist at Q2. And I'm excited today to welcome in Sara Seguin, principal advisor of fraud and identity risk at Alloy, to talk about Alloy's 2025 State of Banking Report. We'll have a link to the report in our show notes, but you can also go to alloy.com to download it. Sara, welcome to the show.
Sara Seguin
Thanks, Jim. Great to be here.
Jim Young
So, before I dive into the report, first, some full disclosure. As some of you already are aware, Alloy and Q2 have a partnership to target account takeover and payments fraud. And we recently announced the launch of our product, Ongoing Fraud Monitoring, and you can learn more about that at q2.com/alloy. And yes, we'll also have a link to that in the show notes as well.
But today, we're not talking about specific products. We are here to talk about the big issues and trends in financial fraud. So, Sara, let's start off with you giving our listeners a little bit of background about yourself, and then about this report, how it came to be, and how you guys put it together at Alloy.
Sara Seguin
Yeah, absolutely, Jim. So, I'm currently a principal advisor on fraud and identity risk with Alloy. I've been with Alloy a little over two years, but prior to joining Alloy, I was in the banking sector for about 17 years, always in the fraud and identity space. So, working for enterprise institutions and whether it was leading an operations organization or leading enterprise fraud strategy and business intelligence, that all helped to then transition and really helped a solution for a lot of different institutions here at Alloy.
As it relates to the survey, this will be the third year that Alloy had conducted the survey. We teamed up with the Harris Poll to survey nearly 500 leaders, and that's everything across fintech to mid-market to enterprise financial institutions to really understand where not only the fraud and risk has occurred with those institutions last year, but then where are they focusing their attention on in the future, and where are they going to make investments, and really helps to give a benchmark for a lot of our clients, but then just industry as well on what folks are concerned about, and again, where they really want to make an investment where they have their eye on.
Jim Young
OK, great. So, when you're putting together this survey, and you're thinking about the questions you wanted to ask for this 2025 report, what were some areas that were of particular interest to you, where you were really curious to find out about where the industry was going and what they're thinking?
Sara Seguin
Yeah, so, since it's the third year, we've used a lot of the questions that are the same year over year to really start to get the benchmark. What folks-
Jim Young
OK, so, do you repeat them the same, or do you switch any of them up, I guess?
Sara Seguin
So, we do switch some, but we try to have some of the same year over year to really start to gather those metrics, so we can compare what we're hearing this year, compare it to last year. So, we have some baseline metrics that are the same year over year, those questions that are asked, and really around the rate and cost of fraud. And then, we have new questions as well. So, Jim, perfect example is, new this year, we had a focus on AI to understand how industry, from a financial organization perspective, how are they viewing it, how do they think there will be an impact in the future as it relates to fraud and the use of AI, how are they using it today? So, some, I would say, hot topics to understand where the industry is going.
Jim Young
OK. And you teased a little bit, I definitely want to get into the AI part of this a little bit later. But before we do, without giving away too much here, because we want people to obviously go and download that report, but can you tell us of maybe one or two key takeaways that surfaced for you as you're putting the report together?
Sara Seguin
Yeah. So, Jim, the first one that I found interesting, I wasn't necessarily surprised. What I found interesting was account takeover was the second leading cause of the fraud being reported. So, account takeover, it's certainly not new, it's been around for a long time, but what I thought was interesting in the fact that it's leading second is we're seeing it continue to move up compared to prior years. So, I think it's being reported probably better than maybe it was historically, but then also showing that some of the other vectors, there's better controls being put into place, but account takeover is still so rampant, and whether that's because a fraudster did it through the financial institution or they involved the client, there's multiple different scenarios. So, I think there's just a lot of different angles there, and that one is still seems to be quite the challenge.
Jim Young
OK. And that sort of same vein, and maybe the account takeover only falls into this category, but was there maybe another one that surprised you a little bit? And that would either be something totally different from what you expected, or maybe just the degree of the result was different?
Sara Seguin
So, that's another great question. Maybe overarching, Jim, I would say, the respondents came back and said, when we asked the question, "What is your fraud rate, and is fraud increasing? Is it slowing down? Is it just the same year over year?" 60% of respondents said that fraud is increasing, and that was inclusive of consumer and business. So, when I see that, it tells me a few things that what we hear is there are still a lot of fraud attacks, fraud is increasing. I expected the number to be higher, a little higher reported, but with that said, 60% is still significant. And especially this year, we have business included, so that also tells me that there is a focus on business accounts. Business accounts are definitely being targeted. And so, when you combine the two, I don't know that we can fully say fraud is stable, right? It's still an increase, it's a steady rate.
Jim Young
So, one point of clarification on this, when you're saying 60%, it's increased, are we talking about attempts, or are we talking about, I guess, successful, for lack of a better word, fraud in which there is actual loss?
Sara Seguin
Yeah, Jim, that's great. The way the question is phrased is more around attempts, so it doesn't necessarily mean that it's true fraud loss. So, it could be that from those attempts, alerts were generated or cases were generated, but not that there is no loss associated with each of those.
Jim Young
Gotcha. OK, all right. So, I mentioned before, you mentioned AI and I said I wanted to get back to that, and this is one of those, I want to make sure I'm reading the stat correctly. I think this ... Most of the stuff, there's an arranged. This one struck me because 99% of FIs said they're currently using AI in the fight against fraud. It struck me as high, and maybe I'm a little bit of a cynic, but I wondered, is there a chance that maybe FIs are casting a really wide net over what they consider to be AI, or is it truly that pervasive?
Sara Seguin
Yeah, Jim, I have to laugh because I think your observation is correct. It's a very wide net, right? So, definitely a wide net. Without giving too much away, what I will say is that that 99% in the survey, we break down, and we ask respondents to indicate in what way they're using AI. Is it machine learning? Is it expansion in data, supervised, unsupervised? Are they using it from an AI agent assist, right? So, we ask, we break it down into some categories there.
And so, I think just by the responses, you can tell it's widely used. And I think what's really interesting about it is, there's been so much talk about AI in the media, but we can agree AI has been around for, if you use that overarching umbrella, there's a lot of different pieces of AI that have been around for a really long time. But it's great because it breaks down some of the categories and also talks about how respondents feel about the future of how AI can help financial organizations to fight fraud as well.
Jim Young
Yeah, AI is the one that's particularly fascinating to me because it just feels like it's the weapon with potential for good or evil on both sides, in terms of the ability to emulate or to pretend you're someone else and that sort of thing. Using AI feels to me it would be almost as probably gives the ability to stop people from doing that sort of thing.
So, another one here where, again, I looked to the page twice to make sure I read it correctly. And we're getting right here, we're just talking about AI, we're really out there in the digital end of these things. And then I see the stat that says 4% of FIs said fraud occurs most frequently at their branch, which, OK, sounds about right to me. 90% said they invest as much time in fraud prevention there as they do in their digital channels. Can you explain that one to me?
Sara Seguin
Yeah. So, Jim, I agree with you, so that was actually another one. There's quite a few stats in here that caught my attention, and this was definitely one of them. There's a key word in there, and that is "... as much time to spend in preventing it."
And why I call that out is because it wasn't necessarily, it's investing the time, not investing the dollars. And where I think that's an important distinction is, investing the time, in theory, the time should be spent investing across all of your channels because we know that fraud will shift, and it can be pervasive across all. But what we see is that financial organizations are starting to make stronger investments. We'll say, in one channel, if they put good controls and solutions in their digital channel or origination through a digital online application, then you start to see there a bit of a shift where the fraudsters will go into the branch, or they will call into the contact center. So, they will start and move to another method.
So, what would be really interesting, if we ask that question again, how has that changed to look year over year? Because I understand investing the time, but what about the dollars? I suspect that the same dollars are not being spent across all of the channels.
Jim Young
Yeah. And now that you explain it to me that way, I wonder, to some extent, is this also a symptom of it simply it's just never going to be as efficient? Fraud prevention in a branch, I would imagine, involves a lot more human training of somebody on how to recognize it and what to do, and that simply just may take more time than setting up a system that, never set it and forget it, but you know what I mean? You don't have to train all the time, whereas you would, I would think, with branch managers and that sort of thing.
Sara Seguin
Yeah, yeah.
Jim Young
OK. All right, good. So, I feel a bit better on that one. I thought I was taking crazy pills when I looked at that one initially.
All right, there's a whole lot in here, and I could keep going on it. But again, the purpose here is to give people an idea of what they can get in this State of Fraud Report, not to give them the whole report. I'll stop on this one here because, to me, it's a part of a thread that I kind of recognize running through it here, of this stat, 56% of FIs are detecting fraud at the point of transaction versus 33% saying they're detecting it at the time of onboarding. Why does this distinction matter? Because it is something I feel like it's called out in a few different ways within this report.
Sara Seguin
Yeah. And so, Jim, you're definitely catching onto a theme there because, at Alloy, we really look at the identity. So, we are homing in on the identity from onboarding through alpha life cycle of that client and of that account at every touchpoint. Because if we can home in on the identity as they are coming in to transact or to make a request, then the goal is to then really prevent before the transaction occurs. And so, I think if we go back in time from a fraud prevention standpoint, long time ago, we were not real-time, and just from an industry standpoint, it was in batch, and it was just focused on transactions, and at that point, it's simply too late. So, ensuring that you're looking at the holistic view of the identity, you can then understand when their behaviors are changing or when this is an outlier. This is not how a client normally transacts—that specific client. That really helps to then detect and stop before there's any monetary impact.
I think the other thing I would say too is, leaning on that statistic, the 33% detecting it at the time of onboarding, there's so many different screenings that can be done, and when you layer them and waterfall them at onboarding, you have a really strong chance of catching a bad actor at onboarding before then they even go any further into your system, and you can do that in real time. So, it all ends up circling back to the identity.
Jim Young
Yeah, I guess I also think of this a little bit of the analogy, almost like preventative medicine versus ... If you think of fraud as an illness, I mean, catching it before it happens versus treating it after it's already happened is a whole big distinction. And I'm curious on this one again, and tell me again if I'm giving away too much of the story here, but again, it's peeling away the onion to get another question, another curiosity. But that number, 56% to 33%, has it shifted since you guys started this in terms of how much of it's being focused on point of transaction versus onboarding?
Sara Seguin
Jim, that's a great question, and I can't think off the top of my head if what that exact number was last year. What I would speak to, in general, from an industry perspective, is there is absolutely a shift. I can't recall that specific number from our survey last year. There's definitely a shift in the industry of the recognition that, if the transaction occurs and you're not interdicting, then not only is it too late, you're trying to recall the funds, send out a hold harmless, or claw them back.
And so, the industry moving toward a platform preventative approach really helps to be able to move quickly, be agile with their partners, and really prevent more than ... And I think another key piece of that is the interdiction, right? So, ensuring that you can interdict all throughout the life cycle. So, it's not just you fire something in real time and you recognize it, but you can't do anything about it. So, yeah, definitely a shift to have that holistic approach in prevention before the transaction occurs.
Jim Young
Gotcha, gotcha. Apologies to put you on the spot on there to see if you could recall something off the top of your head there.
Sara Seguin
All good, great question.
Jim Young
Yeah. All right. And I would love to keep digging through the report with you, Sara, but I will stop there for now. So, thank you so much for coming on the show.
Sara Seguin
No, it's great, Jim. Great conversation. Thanks so much for having me.
Jim Young
And again, if you want to get your copy of Alloy's 2025 State of Fraud Report, just go to alloy.com, or you can find a link to it in our show notes. And that'll do it for this episode. Thanks again for listening. If you want to catch more episodes, please subscribe to the show wherever you listen to podcasts, including Apple Podcasts, Spotify, Stitcher, iHeartRadio. As always, we'd love to hear what you think in the comments, and you can learn more about the company behind the content by visiting q2.com. Until next time, this is Jim Young, and you've been listening to The Purposeful Banker.