Understanding the Hidden Cost of Faster Payments

Anti-Money Laundering (AML) , Fraud Management & Cybercrime , Fraud Risk Management Understanding the Hidden Cost of Faster Payments As Regulators Tighten Liability Rules, Banks Face Pressure to Justify Fraud Losses Suparna Goswami (gsuparna) • May 14, 2026     Share Post Share Credit Eligible Get Permission With the rise of faster payments, banks face trade-offs between fraud prevention and customer experience in payment authorization and digital onboarding. (Image: Shutterstock) As FedNow expands into higher-value transactions with limits now reaching $10 million, banks are being forced to rethink their fraud strategy. To date, banks have managed to strike a balance between fraud prevention and customer convenience, often accepting a certain level of loss rather than introducing controls that could slow payments, increase false declines or drive customers to competitors. See Also: OnDemand | 2024 Phishing Insights: What 11.9 Million User Behaviors Reveal About Your Risk But real-time payments are collapsing the time for investigation. Transactions now become irrevocable within seconds, forcing banks to make fraud decisions before suspicious activity can be fully reviewed. At the same time, U.K. regulators are tightening reimbursement and liability rules, increasing pressure on financial institutions to justify not only how they fight fraud, but how much residual risk they're willing to carry. Most banks already operate with an implicit fraud threshold, but they just don't call it that, said Serpil Hall, senior analyst with Datos Insights. "It lives in where authorization thresholds sit, how much friction the customer journey can absorb before conversion drops, and which controls get deferred when prevention and growth compete for budget," Hall said. The tension is becoming harder to ignore as fraud losses continue to rise despite increased spending on prevention. The FBI's Internet Crime Report showed cybercrime losses in the United States exceeded $16 billion in 2024, up 33% year over year. Gartner found that while 53% of financial institutions increased fraud prevention budgets by 5% or more, 70% of banks still reported rising fraud losses. According to Hall, banks increasingly face trade-offs between fraud prevention and customer experience in payment authorization and digital onboarding. Datos Insights research found that 60% of financial institutions track merchant chargeback exposure but don't automatically tighten authorization controls in response. Only 27% apply stricter controls to high-chargeback merchants. "The deeper problem is structural invisibility," Hall said. "False declines carry no regulatory penalty and generate no fraud loss entries. They do not appear on dashboards." Devesh Desai, partner for risk and regulatory at PwC U.S., said banks are increasingly moving away from attempting to eliminate fraud entirely and instead optimizing controls around acceptable business impact. They're doing it by "weighing the cost of incremental controls against the losses they actually prevent." This calculation goes beyond just fraud dollars. It includes customer friction, false positives, lost revenue from abandoned transactions and the operational costs of investigations. "There is a recognition that overly aggressive controls can create as much downside as the fraud itself, particularly in digital and real-time environments," Desai said. But not everyone agrees fraud should be viewed primarily as a commercial balancing exercise. Brent Philips, senior vice president and director of treasury operations at b1Bank, argued that many institutions continue accepting avoidable losses because they're unwilling to invest adequately in prevention programs. "Many banks do see fraud losses as a cost of doing business," Philips said. “However, I believe much of this stems from many banks lacking the expertise to mitigate these risks." Philips said some community banks avoid forcing customers to close compromised accounts because of customer inconvenience, despite heightened repeat fraud risk. Shorter Investigation Timelines The shift toward real-time payments is intensifying these tensions by dramatically compressing fraud and AML investigation timelines. Will Lawrence, CEO and co-founder of Bretton AI, said most AML systems were originally designed for batch processing environments in which investigators had hours or days to review suspicious activity after settlement. "As the Federal Reserve continues expanding FedNow and enabling larger transactions to move instantly, compliance teams are not only operating with much tighter time windows, but are reviewing higher-value payments that represent much larger financial risk." The biggest challenge isn't detection but completing investigations quickly enough to make defensible decisions before transactions become irreversible. "A common misconception is that real-time AML simply means faster detection models. In reality, the harder problem is the investigation process that follows the alert," Lawrence said. Growing pressure around instant payments is also drawing increased regulatory scrutiny. In 2025, the OCC, Federal Reserve and FDIC issued a request for information examining fraud risks tied to instant payment systems such as FedNow and RTP. The Liability Question Outside the United States, regulators are already moving aggressively to reshape liability frameworks around fraud. The U.K. introduced mandatory reimbursement rules for authorized push payment fraud in 2024. The European Union’s PSD3 and Payment Services Regulation reforms will extend fraud reimbursement obligations across member states and potentially hold online platforms financially liable when fraudulent content isn't removed after notification. Hall described these developments as more than traditional security regulation. "That is not a security regulation. It is a liability allocation mechanism," she said. "It prices fraud risk across an ecosystem and assigns financial consequences for failure to act." Regulators are also increasingly scrutinizing how institutions justify the friction imposed on customers through fraud controls. At the same time, financial institutions are investing heavily in artificial intelligence-driven fraud controls to improve both detection accuracy and customer experience. Gartner found that 62% of banks now prefer hybrid fraud detection models combining supervised and unsupervised machine learning techniques. Banks are also increasingly using behavioral biometrics and device intelligence to reduce false positives and improve risk-based decision-making. Fundamentally, fraud is still a risk management issue, but now it's being viewed through a commercial lens, Desai said. "Different products and channels carry very different fraud profiles, and institutions are starting to manage that more explicitly." But as banks formalize those calculations, regulators are expected to demand stronger governance around how those decisions are made. "The expectation isn't that firms eliminate fraud entirely," Desai said. "But regulators do expect that any residual risk is well understood, actively managed and clearly governed." For banks, the era of quietly absorbing fraud losses may be ending. Now the challenge isn't just stopping fraud, but proving to regulators, customers and boards that the level of fraud they tolerate is both deliberate and defensible.