When protection becomes a product feature

Transforming trust in financial services into a strategic differentiator

Let’s face it: it’s scammy out there. A recent BioCatch report found that the number of banking scams has increased by 65% over the last year.

That’s why consumers now consider fraud prevention to be an essential part of their overall banking experience. According to Alloy’s State of Scams Report, 97% of consumers say fraud prevention is the most important factor when choosing where to bank. That marks a strategic transition for financial institutions and fintechs, taking protection from a compliance cost center to a key product differentiator.

To take the next step in your trust transformation, it’s important to understand the drivers that are shaping approaches to fraud today. 

Below, we explore how scams in the age of artificial intelligence (AI) are changing consumer expectations, what financial institutions and fintechs can do to respond, and how Alloy can help build the protective layer that will drive customer loyalty, brand trust, and continual growth.

As scams become more prevalent, trust is a strategic salve

As technology advances, fraud advances right along with it. Today, AI-driven scams are making it harder than ever to know who to trust, and that puts banking and fintech customers in a vulnerable position. 

Consumers want to stay vigilant, but 85% worry AI is making scams harder to detect. In many cases, they’re right. Bad actors are weaponizing trust through cloned voices, legitimate-looking communications, and other tactics made stronger and easier with AI. 

This growing threat is reshaping what consumers can do to protect themselves on their own — and in turn, what they expect from financial institutions and fintechs. They expect seamless protection. They expect real-time responses to fraud. And many expect reimbursement when things go wrong.

These expectations reflect the high stakes of fighting fraud. Alloy found that over a quarter (28%) of consumers have lost money to scams, with one-fifth losing $5k or more. But the damage often extends farther than a bank account: 29% of consumers feel that emotional distress is the worst part of being scammed. That ultimately affects their trust in their financial organization, arguably one of the most important elements of a banking relationship.

On the other hand, when customers feel protected, they deepen their engagement. They're more likely to open additional accounts, recommend the institution, and forgive occasional friction if they know it's in service of their safety. But when trust breaks, customers will leave. Alloy’s State of Scams Report shows that 17% of scam victims switch banks after they experience a scam.

Proving trustworthiness in the age of AI scams has become a strategic tactic that not only soothes consumer anxieties but also strengthens your market position. Customers move from transactional to relational banking with financial organizations they trust. In doing so, protection becomes the foundation for lifetime value.

Financial institutions and fintechs need to be intentional about building (or rebuilding) trust

After fraud occurs, there are a number of ways you can rebuild trust. 

Many consumers feel that fund recovery is an appropriate response: 67% believe they should be reimbursed for stolen funds, even when they personally authorized the transaction. But, in many cases, financial institutions don’t have a legal obligation to do so. Rules like UCC §4-401 — which says banks can only charge against “properly payable” items — are in place to protect consumers from account takeover (ATO) fraud and unauthorized transactions. It doesn’t cover authorized transactions, however, leaving a loophole for authorized push payment (APP) fraud, another highly prevalent form of bank fraud. That means, in these cases, it’s up to the individual bank’s policies whether or not they’ll reimburse stolen funds. 

Communication is another essential building block of trust for financial institutions and fintechs. Alloy’s State of Scams Report found that a large majority (87%) of consumers would lose trust if their bank didn't immediately notify them of a scam attempt. While there may be an instinct to hold back communication until a fraud attempt is dealt with, that could actually cause more harm than good. In an era when threats evolve quickly, silence could be seen as incompetence. 

And while consumers want their financial institution or fintech to protect them, they also want quick and easy experiences, as 69% expect new account sign-up to take less than 10 minutes. Financial institutions and fintechs have to manage the razor-thin balance between friction and security in order to build (and keep) trust with their customers. 59% of consumers are frustrated at account opening, likely due to what they perceive as unnecessary friction, yet they still expect robust fraud protection. 

Despite this seemingly contradictory request, financial institutions and fintechs aren’t in this fight alone. Most consumers don’t expect increased fraud protection without any give-and-take. Alloy found that:

• 87% of consumers would spend an extra 5 minutes on security measures
• 82% would complete a short survey to customize their protections
• 69% would trade some privacy for stronger AI protections

These findings show that customer trust is only at risk when security measures feel arbitrary or excessive. That means you don’t have to choose between adding customer friction or taking on additional fraud risk. 

Bridging the growing trust gap with seamless protection

With the right approach to identity and fraud prevention, you can build trust and turn protection into a growth driver, offering speed and security at once. Alloy’s end-to-end identity and fraud prevention platform allows you to do it with ease:

Modern orchestration layers create dynamic risk profiles from real-time data. 

Low-risk customers sail through onboarding, while high-risk signals trigger additional checks. This means that the vast majority of legitimate customers get the frictionless experience they expect, while potential fraudsters get a closer look.

Real-time monitoring takes you from reactive to proactive. 

Warning signs get flagged before transactions are completed, allowing you to intervene at the moment it matters most. Your customers feel secure, and there’s no need for damage control after the fact.

Iterative risk models evolve alongside threats. 

Sophisticated AI models detect new fraud patterns that traditional models could miss, accounting for risk signals beyond simple transactions. This holistic, full lifecycle approach helps protect consumers now and in the future.

These capabilities attract customers while also reinforcing loyalty: 83% of customers stay after scam attempts when institutions handle them well. This signals that earning trust through protection transforms the customer experience and deepens relationships.

How to turn protection into a winning differentiator

Once you have the right tech in place, you can turn fraud prevention into a competitive advantage. Start with these five key tactics:

1. Apply even protections across channels.

Fraud that starts on one channel often jumps to another. Applying the same fraud prevention technology across digital and physical channels — both online and in-branch — unifies visibility for your fraud team and helps prevent fraudsters from channel hopping and evading detection. When fraudsters can’t break through your defenses, they move on to other institutions.

2. Act quickly.

When it comes to speed, you can fight fire with fire: AI automations can help expedite your response to fraud. 

Alloy’s Fraud Signal uses AI fraud detection to quickly flag suspicious behavior at the entity or individual level as well as at the organizational level. Two in three consumers (66%) report they would be more likely to choose a financial organization that applies AI for fraud prevention.

3. Communicate proactively — and often.

Alert customers of fraud attempts as soon as possible, and offer open communication for fraud education. 77% of consumers agree that educational materials help them identify when they are being scammed, so acting as their source of knowledge on the latest fraud tactics will help build trust and provide protection. 

4. Use adaptive technology.

When it comes to the friction-versus-security debate, we know what customers actually resist is inappropriate amounts of friction, or friction applied at what seems like the wrong place and time. When consumers understand what security measures to expect and why they’re in place, fraud protection feels like a partnership rather than an obstacle. Then, extra steps become trust signals instead of frustrations. 

Alloy customers know this as friction-right banking. Fraud prevention measures adapt according to risk, so customers understand why they're being asked for additional information during step-up and multi-factor authentication (MFA) flows. These measures can be adapted according to risk level, using Alloy’s dynamic risk ratings that ensure the right level of security at the right time.

5. Layer in diverse data sources.

Consider a slice of Swiss cheese. Taken alone, there are holes in any single slice of cheese. But when those slices are stacked, suddenly the holes begin to vanish. Layering traditional and alternative data sources can have the same effect.

Alloy unifies over 250 data solutions in a single fraud prevention ecosystem, creating a comprehensive view of fraud risk that catches threats that point solutions might miss. This foundation transforms fraud prevention from a compliance measure into a market differentiator that helps financial institutions and fintechs thrive, no matter how sophisticated scams become.