The recent study by Alloy Research on fraud in the financial industry has revealed a concerning picture of the current state of fraud. With 91% of respondents reporting an increase in fraud rates over the past year, the industry is facing a growing threat. Fraudsters are becoming more sophisticated in their methods of attack, which is leading to significant financial losses, legal repercussions, loss of customer relationships, and reputational damage.
Larger companies are found to be more likely to experience higher volumes of fraud, with 75% of enterprise companies reporting over 1K fraud attacks in the last twelve months. In comparison, only 35% of growth companies and 29% of mid-market companies reported similar fraud experiences. Respondents ranked direct financial losses as the cost they care most about, with loss of customers being the least concerning consequence. However, the C-suite respondents showed more interest in the indirect costs of fraud than the general respondent population.
Despite 95% of respondents believing that their organizations could manage fraud in-house, there are still significant areas for improvement. 46% of respondents cited a greater need for automation as the biggest barrier to being prepared to combat fraud, followed by the absence of dedicated teams (41%) and the inability to adapt to new threats (39%).
Smaller companies are looking to automate manual work to optimize resources, while larger organizations are building dedicated teams to solve fraud. Over two-thirds of respondents have over half their workforce working on fraud-related activities. The Compliance team is the most involved in fraud prevention efforts (51%), followed by Security (40%) and Information Technology (33%). These three groups were also named as the owners of fraud prevention, with Compliance (17%), Information Technology (16%), and Security (15%) being the most mentioned.
To combat this growing threat, financial institutions are investing more resources in fraud prevention. Enterprise businesses are building out dedicated fraud teams, while mid-market and growth businesses are increasing automation to support their leaner teams. Despite a 71% increase in spending on fraud prevention resources year-over-year, there is still room for improvement. 59% of banks surveyed stated that Machine Learning is a top investment for tools in 2023, with a focus on Synthetic Fraud.
In order to keep up with the pace of fraud, financial institutions need to prioritize investments in flexible fraud technology. By investing in technology that can be easily adapted and updated to fraud intelligence from multiple sources, institutions can ensure they are equipped to handle the challenges of today and prepare for the future. The Alloy Research study highlights the importance of being proactive in preventing fraud and the need for financial institutions to invest in technology that helps future-proof their fraud controls.
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