Proactive Fraud Monitoring Tools and Techniques

Some smaller financial institutions (FIs) may assume that their size makes them less appealing to fraudsters. In many cases, fraudsters will take the path of least resistance when selecting victims and may choose to target smaller institutions if they believe their defenses are less sophisticated. In a 2024 Alloy study, 60% of surveyed U.S. FIs reported an increase in fraud across both consumer and business accounts.¹ As fraud rates continue to rise, it’s crucial that all FIs, no matter their size, leverage robust, proactive fraud monitoring tools to combat evolving fraudsters.

How does proactive fraud monitoring reduce losses?

Smaller FIs may be hesitant to implement fraud mitigation tools because of high costs, causing them to rely on a reactive fraud response. This can often be more costly than fraud mitigation tools, since the fraud event has already occurred by the time a response is deployed, resulting in large reputational, financial, and operational losses.

In a 2024 survey, 73% of U.S. FIs ranked reputational damage as the top consequence of fraud,¹ as 30% of cardholders switch FIs after a negative fraud experience.² The same survey found that 65% of midmarket FIs incurred direct fraud losses – excluding regulatory fines – exceeding $500K in 2024.¹ Moreover, it is important for FIs to consider the operational costs that reactive fraud responses may create - for every $1 in fraud, FIs spend an average of $4.36 in related expenses such as legal fees, fraud processing, investigation, and recovery costs.³

Key proactive fraud monitoring tools

In 2024, 56% of mid-market financial institution decision makers reported that over 1,000 consumer/business accounts experienced fraud in the last year.1 Card-not-present (CNP) fraud, synthetic identity fraud (e.g., deepfakes), and account takeovers are emerging as top payment fraud threats. These risks are accelerating in part due to recent advancements in technologies like AI. 4 Given the increased frequency and sophistication of fraud, proactive fraud monitoring has become crucial for FIs to protect their cardholders’ assets, maintain trust, and mitigate potential financial losses.

The following three proactive fraud monitoring solutions empower FIs to effectively combat evolving fraudsters:

• Customized fraud rules to catch potential fraud: FIs can enhance customized fraud rules by layering in predictive tools, like fraud scores. Customized fraud rules can be used to impose daily limits on both transaction frequency and amount. These rules can be adjusted based on cardholder and transaction behavior. ⁵ Additionally, likelihood of fraudulent activity can be measured and assigned to cardholders or transactions using numerical fraud scores, further enhancing fraud rules. For example, TransFund’s SecureLock Predict enables FIs to flag suspicious activity and reduce instances of account takeover or synthetic identity fraud with a combination of proactive rule recommendations and fraud scoring.
• Custom reporting for timely insights: FIs can leverage custom reporting to monitor and analyze transaction data in real-time, facilitating swift identification of suspicious activities. Advanced custom reporting tools can leverage machine learning algorithms to detect anomalies and potential fraud attempts, empowering proactive risk management while reducing false positives.6 Solutions such as TransFund’s Defender offer dynamic reporting that adapts to emerging threats, enabling FIs to combat CNP fraud or account takeovers in real-time before losses occur.
• 3-D secure one time passcode (3DS OTP) to verify cardholder identity: FIs can enhance online card payment security by implementing 3-D Secure One Time Passcode (3DS OTP), which verifies cardholder identity (by requesting input of a unique one-time passcode) before authorizing credit or debit transactions.7 FIs can optimize 3DS OTP strategies – improving step-up authentication settings while ensuring high-risk transactions undergo verification. Solutions such as TransFund’s 3DS OTP can be leveraged to proactively block (CNP) fraud.

Fraud monitoring best practices

FIs should establish a clear set of fraud monitoring best practices to mitigate losses, maintain cardholder trust, and stay ahead of evolving threats.

• Establish cadence for regular fraud detection system updates:Set up a consistent schedule for reviewing and updating your fraud detection system to ensure it remains effective against evolving threats. Regular updates help maintain the system's adaptability and effectiveness in combating new fraud techniques.
• Train Staff to Recognize and Respond to Fraud: Develop a comprehensive anti-fraud training program that educates employees on identifying indicators of varying fraud types, understanding the impact of fraud, and following clear reporting processes.
• Educate Cardholders on Secure Payment Usage: Prioritize cardholder education surrounding the responsible and secure use of emerging payment solutions, making this a core message in communications to cardholders. In doing this, FIs can foster trust and a safer transaction environment for both businesses and cardholders.

Conclusion

In today’s evolving fraud landscape, no financial institution—regardless of size—is immune to risk, making proactive fraud monitoring essential to safeguard assets, reputation, and cardholder trust. By upholding best practices and implementing customized fraud rules, custom reporting, and advanced authentication tools like 3DS OTP, FIs can ensure resilience against increasingly sophisticated fraud tactics, while mitigating losses; partnering with TransFund accelerates the implementation of these advanced tools, future-proofing operations. A commitment to continuous system updates, staff training, and cardholder education further strengthens defenses, ensuring resilience against evolving fraud tactics.

If you’re a current TransFund client and would like to reach the Fraud Services team, please contact TTFraud@transfund.com. Not a current TransFund client? Click here to connect with us.

Sources:

1. Alloy, 2025 State of Fraud Report, 2025
2. PYMNTS, Financial Scams Damage Consumer Trust in Banks, 2024
3. ToolCase, The Growth in Fraud at Credit Unions Has Gone Parabolic And Members Are Highly Concerned, 2023
4. Datos Insights, Digital Defense: Top Fraud Threats and Strategic Investments in Banking, 2025
5. Alkami, Best Practices for Business Banking Solutions Transaction Limit Management, 2024
6. TinyBird, How to build a real-time fraud detection system, 2023
7. Stax, What is 3D Secure Authentication and How Does It Work