The Opportunity Cost of Fraud

from: The Slant: A Different Take on Banking by BankDirector

The true cost of fraud to institutions may be more than financial and reputational. It could hinder decision-making, costing banks opportunities to grow and expand their offerings.

Banks are struggling to keep up as fraud grows more pervasive and sophisticated. Alloy’s 2026 State of Fraud report, which was released this week and surveyed more than 500 decision-makers at banks, credit unions and fintechs, found substantial year-over-year increases in various forms of fraud. That included the two most common in 2025: synthetic identity fraud and account takeover fraud. 

That’s exacting real costs: 22% of institutions lost more than $5 million to fraud in the prior 12 months, and 49% reported spending 10% to 14% of their annual budget on fraud prevention. But it’s also influencing future earnings. According to the survey, 94% said fraud was the No. 1 consideration when deciding whether to offer new products or features for customers. That’s led to delays or avoidance in serving higher-risk customers (50%), implementing automated digital onboarding (43%), or offering digital asset services (42%) or real-time or instant payments (40%).  

Bank leaders will need to accept some level of risk in their fight against fraud — zero isn’t an option. Understanding what level of fraud your bank would be willing to accept starts with a risk assessment, said Steve Sanders, chief risk officer at CSI, in a recent webinar. When considering a new product or upgrade that could add risk, he suggested that bank leaders think through adoption rates and whether that type of service tends to be easily compromised. That analysis could lead to a better result. “Ensure that you’re not just putting in place the tool,” he said, “but that you’re budgeting and you’re planning for how you’re going to keep that tool from being compromised.” 

Sanders added that most banks could better incorporate risk assessment with project planning and decisioning. “They view risk assessment as an effort of compliance, not an effort of protecting the bank from risk,” he said. Instead, that assessment can help leaders make an informed decision — and seize opportunity when it comes. 

• Emily McCormick, vice president of editorial & research for Bank Director