Is Bank Fraud Prevention Better Than Detection?
April 29, 2025
Benjamin Franklin told fire-threatened Philadelphians in 1736 that "An ounce of prevention is worth a pound of cure."
In 2025, as AI-powered fraud schemes evolve at breakneck speed, financial institutions can no longer afford to simply react after the damage is done.
Forward-thinking banks have discovered a transformative truth: proactive fraud prevention doesn't just reduce losses—it slashes operational costs, delights customers with frictionless experiences, and outperforms reactive approaches by every meaningful metric.
The Problem with Traditional Fraud Detection
Financial institutions have traditionally focused almost exclusively on reacting to fraud by increasing the sensitivity of their fraud detection stacks.
This approach (100% focus on fraud detection) has resulted in increased user friction, leading to customer frustration, abandoned transactions, and harm to the bank's reputation. Not to mention the high costs of deploying and monitoring detection infrastructure.
Ironically, reactive detection is known to lead to worse outcomes (in terms of losses from failed transactions) from false positives than fraud itself. Banks are now searching for a solution that prevents fraud without sacrificing user convenience.
While your institution debates its next move, cybercriminals actively target your customers with increasingly sophisticated attacks that traditional detection systems aren't built to stop.
Some banks have even started increasing their acceptance rate of fraud losses in pursuit of overall customer satisfaction.
This is not sustainable. The rise of AI-driven fraud (and increased competition among banks) is completely undermining the effectiveness of a reactive approach.
Cybercriminals created nearly 1 million new phishing sites each month in 2024, a 700% increase since 2020.
It's time to reimagine fraud prevention by shifting the focus from detecting fraud to proactively stopping it before it happens.
Limitations of Traditional Fraud Detection Methods
Fraud detection doesn't stop fraud.
The typical fraud detection stack works based on statistical risk signals. These signals are temporary and result in false positives and false negatives, which frustrate customers and do nothing to stop bad actors.
It's also costly.
As banks invest in more systems designed to detect fraud, those systems drive higher costs associated with resources and orchestration. Authentication layers like 2FA, OTP tokens, and transaction limitations result in poor customer experiences.
And even in the best-case scenario, fraud is only being detected, not stopped. Transactions are allowed to occur using weak authentication methods, with the expectation that fraudulent activity will be identified later.
Unfortunately, a score-based detection is not an absolute indication of fraud; usually, it's just a probability, which requires verification before any remedy is applied.
Suspected transactions are typically either:
"Accepted with risk" (and some measure of loss)
Require verification after the fact, involving friction for the legitimate customer
What makes matters worse is that fraud detection alerts typically use weak authentication methods such as SMS, which are often the same methods used for initial user access. It's likely that fraudsters have already circumvented these measures through tactics like SIM swapping or basic social engineering.
The Case for Shifting from Fraud Detection to Fraud Prevention
Historically, fraud prevention has been considered by many to be either:
a) Too expensive. b) Not possible.
At IronVest, we help financial institutions prove that this opinion is dangerously outdated.
Preventing fraud before it occurs gives banks the competitive edge needed in 2025, directly resulting in:
Reduced losses. Real-time fraud prevention stops fraudulent transactions from happening, eliminating the additional costs of investigation and remediation. Effective fraud prevention also removes the need to accept risky transactions as an inevitable business cost.
Better user experience (UX). With continuous user action authentication as a fraud prevention approach to transaction security, you no longer need to interrupt user experiences with out-of-band MFAs, KBAs, and other forms of re-authentication.
Enhanced customer trust. When your customers know you can stop fraud before it happens, it builds confidence, increases loyalty, and drives repeat business.
Improved operational efficiency. Effective fraud prevention reduces the reliance on extensive systems, statistical analysis, forensic investigations, and even entire teams required for traditional fraud detection methods. Also, fewer alerts translate to fewer calls from customers wondering why their transactions are still processing.
How to Move from Fraud Detection to Fraud Prevention
For almost every institution, the current trajectory of fraud detection capabilities will not be able to keep up with regulatory and threat actor trends without severely compromising the user experience.
At IronVest, our core advice to banks and financial services is to shift your anti-fraud budget from detection to proactive prevention.
Here's how:
1. Implement biometric fraud prevention technologies
Stopping fraud starts with verifying that a legitimate user, not a fraudster, is initiating the transaction. This can involve using biometric modalities, like fingerprints, facial recognition, or iris scans.
While that's sufficient for authentication, it's not enough for fraud prevention. According to industry reports, 30% - 50% of fraud occurs after the user authenticates or through account takeover attacks.
The next step is to ensure that the biometric markers (e.g., facial recognition) are not deepfakes or other AI-generated content. This involves checking for signs of liveness, which can be further strengthened by incorporating device and behavioral analytics.
The third and most challenging component of effective fraud prevention is ensuring that the authenticated user is behind every action at every stage of the journey, not just at sign-in or log-in.
2. Enhance existing authentication protocols
Modern authentication methods, like passwords, 2FA, device recognition, and lockout policies, primarily focus on securing the login process.
Once logged in, there are rarely any additional security checks, leaving systems vulnerable to exploits.
These methods can also be inconvenient, requiring users to switch between devices.
A more effective and less frustrating solution is continuous, seamless, and "invisible" multi-factor authentication throughout the account session.
The focus should shift to maintaining continuous biometric authentication throughout user sessions, particularly during sensitive actions, binding the user's biometric identity with their actions in real-time, and creating a sealed record of who performed each activity.
This approach provides stronger security than traditional MFA while reducing user friction since authentication happens naturally as part of the user's normal interaction with the application.
3. Move from risk scoring to identity verification
Focusing on high-risk transactions or customers is a blunt-tool approach geared toward decreasing the chance of fraud, but not completely stopping it. In many cases, it also creates user friction that negatively affects a customer's experience, even for basic transactions.
Traditional risk-based approaches rely heavily on risk scoring and complex orchestration rules, leading to false positives, unnecessary user friction, and inconsistent experiences. Taking this approach means constantly tuning these systems and managing multiple vendor integrations while still lacking certainty about whether actions are genuinely legitimate.
A more effective approach is to implement deterministic validation that provides clear yes/no answers about the legitimacy of user actions, verifying whether the authenticated user was present and whether the transaction details received match what they just entered.
This eliminates the need for complex risk scoring and orchestration while providing stronger assurance against account takeover and session compromise attacks.
Balancing Fraud Prevention and User Experience
Even the best fraud prevention strategies will fall short if they're cumbersome or inconvenient. A true solution needs to balance security with a seamless user experience.
Here are four ways to achieve that:
1. Streamline authentication processes
Rather than have users access multiple devices or toggle between browser windows, implement session-based biometric multi-factor authentication (MFA).
With this approach, a user's biometric markers—combined with keystroke patterns, mouse movements, physical location, or device characteristics—act as a secondary authentication factor.
This invisible MFA allows users to bank, shop, and access accounts without manually entering codes or undergoing additional verification.
2. Leverage AI for frictionless fraud prevention
AI can analyze large volumes of data in real-time to identify potentially fraudulent activity, eliminating the false positives typical of conventional detection methods.
This method works seamlessly in the background, providing strong fraud prevention and an uninterrupted, passwordless experience throughout the entire customer journey.
It also can combat threats posed by deepfakes and other synthetic fraud techniques.
3. Personalize security measures
Different customers have different activity and fraud profiles.
Allowing customers to utilize stronger forms of biometric authentication can open the opportunity for enhanced privileges and product features—such as increased transaction limits—and lets them create a security profile that best fits their online activity without the burden of traditional alerts and friction-based authentication methods.
4. Implement cross-channel fraud prevention with a consistent biometric process
Your customers connect with your bank through a variety of channels.
An effective fraud prevention strategy should use biometric technology to verify customer identities and credentials not only for online banking and mobile apps, but also at ATMs, physical branches, and all other points of access.
Fraud Detection Is Good, But Prevention Is Better
No financial institution's current fraud detection setup is built to scale into the future.
Complex fraud threats, increased competition, and growing customer intolerance for poor experiences will do serious damage to the traditional banking fraud detection stack.
Conventional fraud detection approaches are increasingly costly to employ and maintain, and they are often inconvenient and frustrating for customers to use. In the end, they are simply not designed to stop fraud from occurring.
Moving from a detection-centric approach to a preventative one offers significant benefits for both fraud and digital teams.
These benefits include reduced losses, better customer experiences, enhanced trust, and improved operational efficiency.
Moving from detecting fraud to preventing it doesn't have to be difficult or time-consuming. The team at IronVest can work with your fraud and digital leaders to implement a solution that better protects your institution and your customers.