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AML/CFT Financial Crime Fraud Prevention Card Fraud Check Fraud Fraud Trends

The real cost of fraud for financial institutions explained

Terri Luttrell, CAMS-Audit, CFCS
July 23, 2025
Read Time: 0 min

This article covers these key topics: 

Measuring the cost of fraud losses

The true cost of fraud goes beyond initial monetary losses. Read on for factors your institution should consider in its plans to combat fraud.

Consumer and bank fraud loss statistics

Today's financial institutions are grappling with significant rises in various types of fraud.

Check fraud has surged, driven by the exploitation of vulnerabilities in the postal system, with fraudsters using techniques like mail theft and check washing. FinCEN reports that Suspicious Activity Report (SAR) filings for check fraud in 2024 alone exceeded 521,000, nearly doubling the number of filings the previous year. Check fraud in 2024 was projected to reach a staggering $24 billion globally.

Online fraud, including investment scams and pig butchering scams, has also escalated, with sophisticated schemes targeting unsuspecting investors. While some of the recent trending fraud schemes are not new, they have been transformed to prey on communities already dealing with unprecedented times.

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The factors mentioned above created abundant opportunities for fraudsters, and financial institutions and consumers must stay one step ahead to protect themselves from falling victim to a myriad of fraud schemes. According to the FTC, consumers lost more than $12.5 billion to fraud in 2024. This marks a 25% increase over 2023. More consumers reported losing money to investment scams—more than $4.6 billion—and the second-highest fraud category was imposter scams, with fraud losses of nearly $5.7 billion reported. The FTC also reports that consumers lost more money to bank transfer and cryptocurrency fraud than all other methods combined. This, of course, doesn’t include fraud losses that were not filed due to the victim's embarrassment or lack of knowledge on how to report. No matter the medium used, it is clear fraud continues to grow and cannot be ignored.

The true cost of fraud extends far beyond direct financial losses. There are many ways that fraud losses impact financial institutions' bottom line and its hidden costs can add up. Institutions must invest not only in advanced security measures and skilled personnel but also in client education and community engagement to combat fraud effectively.

Geographic and sector variations in fraud risk

Fraud impacts financial institutions differently depending on both their geographic location and sector.

Geography

Studies show significant variation in fraud costs across regions, with U.S. and Canadian institutions facing rising losses. Canadian firms, for example, saw a 28% year-over-year increase in the cost per dollar of fraud, reaching $4.45 in 2023, while U.S. firms averaged $4.41 per dollar lost. Within the U.S., states like North Dakota and New York experience the highest per-victim losses, but states such as Rhode Island and Alaska report the most fraud incidents per capita.

Sectors

Sector-wise, banks, fintech companies, and credit unions all report increases in fraud attempts, but the financial impact and attack vectors differ: fintechs, for instance, may face higher exposure to digital and mobile fraud, while traditional banks contend with check and ATM fraud. Understanding these geographic and sector-specific patterns is crucial for tailoring effective fraud prevention strategies.

3 pillars for evaluating the costs of fraud

Leaders within financial institutions are frequently tasked with grasping the full scope of a bank's fraud losses and their impact. It's essential to recognize that the repercussions extend far beyond the immediate monetary losses from each fraudulent transaction. To fully appreciate the actual cost of fraud, one must delve into its complex nature and wide-ranging effects.

1. Hard dollar losses

The first pillar encompasses the overall hard dollar loss rate experienced from illicit transactions. This represents the immediate financial hit impacting the bottom line, including not only the amount of funds extracted by fraudulent means but also the associated financial repercussions, such as transaction reversal costs and compensation paid to affected clients. While this tangible loss is the easiest to quantify, it merely scratches the surface of fraud-related costs.

2. Technical and human resource costs

The second pillar concerns the cost of technical and human resources dedicated to fraud prevention, detection, and remediation. The race against fraudsters demands continuous investment in cutting-edge technologies designed to safeguard against intrusion and theft. Additionally, the human capital investment—in terms of both hiring fraud prevention experts and training existing staff—constitutes a significant operational expense. These costs are necessary and ongoing, forming a crucial barrier against fraud scams.

3. Client value impact

The third pillar, the client value impact, addresses attrition rates following fraud incidents. The erosion of trust caused by fraud can lead to a decline in client retention, a critical issue for financial institutions. Each client lost to fraud represents future revenue streams that are now gone. The relationship between fraud incidents and client departure is a serious concern, as the institution not only loses the lifetime value of the client but also incurs higher costs in attempting to acquire new clients to fill the void.

By understanding these three pillars, leaders can better assess the true cost of their bank's fraud losses and allocate resources more effectively to mitigate its impact.

Additional consequences of fraud loss: Non-financial risks

Reputational risk

Separate from these pillars, financial institutions suffer reputational risk whenever a client falls victim to fraud scams. The damage inflicted on an institution’s reputation after a fraud incident can have extensive ramifications. A tarnished reputation can deter potential clients and negatively affect existing relationships, as trust is critical in a financial relationship. According to research by Javelin Strategy & Research, 31% of clients are more likely to leave the financial institution after a fraud event, even when the bank or credit union is not at fault.

Regulatory risk

Regulatory risk is yet another significant concern. Failure to meet regulatory standards can result in regulatory sanctions, fines, and a mandate for expensive corrective measures. Moreover, non-compliance can lead to enhanced scrutiny by regulators and the possibility of heightened requirements in the future.

The Financial Crimes Enforcement Network (FinCEN) has listed fraud and cybercrime as two of its National AML/CFT Priorities. This is the first time fraud has been addressed at a high level as part of AML compliance, but it makes sense considering proceeds from fraudulent activity must be laundered.

With fraud now considered an AML/CFT priority, regulatory penalties and fines around fraud may be something to consider in future exams. Regulators are expecting financial institutions to address each of the priorities in their AML/CFT program, and when there are deficiencies, you can expect criticism and possibly monetary penalties. Now is the time to be sure that your fraud, AML, and IT security teams collaborate and keep each other informed on illicit trends they are detecting.

Best practices for fraud risk management: A checklist to prevent bank fraud losses

Financial institutions must approach fraud with a comprehensive strategy that accounts for direct financial loss, resource allocation, and the broader implications on client value, reputation, and regulatory standing. It is a continual battle requiring vigilance, innovation, and a commitment to safeguarding all stakeholders. Things to consider include:  

  • Hardware: Is your business data safe, and are updates and patches applied timely? They should always be. 
  • Software: Do you have adequate fraud detection software? Are you able to detect various types of illicit activity, such as check, wire, and ACH fraud? 
  • People: Do your investigators receive proper training? Do they have the correct skill set to detect complex patterns of fraudulent activity?  
  • Client education: Does your institution have avenues for client education, such as written materials, online warnings, or in-person seminars for clients and prospects? If not, this is a great way to foster community goodwill and deter fraud at the same time. 

Industry innovations in fraud risk management

Abrigo is at the forefront of industry collaboration and innovation, providing U.S. financial institutions with advanced technology solutions to combat fraud more effectively. By centralizing data and integrating compliance, risk management, and fraud detection tools, Abrigo enables organizations to work more efficiently and share critical intelligence across teams. Our platform supports collaboration between fraud, AML, and IT security departments, ensuring that emerging illicit trends are quickly identified and addressed.

Software solutions

Abrigo’s commitment to innovation is reflected in its comprehensive suite of fraud detection software, which leverages cutting-edge analytics to detect various types of illicit activity, from check and wire fraud to more complex schemes.

Education

Additionally, we promote industry best practices by offering resources for your professional education and community engagement, helping institutions stay ahead of evolving threats and reduce the overall cost of fraud.

For more information about Abrigo’s collaborative approach and solutions, visit our Fraud Prevention and Fraud Detection Software pages.

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About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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