More than half of banks plan to outsource fraud detection

Half of the institutions surveyed said fraud undermines customer loyalty, a finding that redefines financial crime as a strategic business risk rather than a stand-alone expense.

The 2025 State of Fraud and Financial Crime in the United States report, produced by PYMNTS Intelligence in partnership with Block, surveyed 200 senior executives at U.S. financial institutions and fintech companies.

The report found that unauthorized party fraud, fueled by credential theft and account takeovers, now accounts for 71% of all fraud incidents and dollar losses.

This is a dramatic reversal from 2024, when such programs accounted for only 48% of events. The industry-wide average fraud loss rate rose from 0.6 basis points to 0.8 basis points, with large banks reporting losses that were more than four times the average.

Meanwhile, 68% of institutions have increased their fraud detection budgets year over year, suggesting technology spending has moved from optional to necessary.

Three data points from the report illustrate how the ripple effects of fraud extend far beyond direct financial losses:

• Barriers to innovation are widespread but uneven. Financial institutions report an average of 3.9 significant barriers to modernizing their fraud defenses. Large banks cited competitive innovation needs and integration challenges most frequently, accounting for 66% each.

• Regional banks and credit unions report higher data management costs, at 62% and 55% respectively. Fintech companies performed worst in terms of technical complexity, at 60%. The path to better fraud prevention looks different depending on the size and structure of the institution.
• A technology gap is forming around artificial intelligence and behavioral analytics. About eight in 10 fintech companies and large banks employ some form of advanced behavioral analytics. But overall, nearly one in five institutions, especially smaller and regional banks, still operate without these tools. 15% of organizations reported not using machine learning at all. The chasm between organizations that are technologically advanced and those held back by legacy systems is widening.

Agencies don’t rely on a single solution. About half of financial institutions plan to expand fraud detection outsourcing (51%) and increase their use of cloud-based fraud platforms (50%). Forty-four percent are building new internal systems. Another 40% is invested in deep learning and 37% in machine learning.

This emerging approach is multi-layered, combining external expertise, cloud infrastructure and in-house development.

The report also highlights a range of pressures faced by institutions beyond fraud itself. Nearly half cited financial sanctions compliance (47%) and complex regulatory requirements (45%) as the top challenges. 46% pointed to an increase in payment speeds, and 41% cited an expansion of payment types and currencies, including peer-to-peer and cryptocurrency transactions. Thirty-nine percent of respondents said customers are increasingly willing to engage in third-party fraud.

The findings paint a picture of an industry managing fraud, regulation and payments modernization simultaneously, often in systems not designed for this level of complexity. Agencies that can balance these needs will win the trust of their clients.

At PYMNTS Intelligence, we work with businesses to uncover insights and drive intelligent, data-driven discussions about changing customer expectations, a more connected economy, and the strategic shifts needed to deliver results. With rigorous research methods and an unwavering commitment to objective quality, we deliver data you can trust to grow your business. As our partner, you'll have access to our diverse team of PhDs, researchers, data analysts, digital numerators, subject matter veterans, and editorial experts.