Compliance, crime rings and internal controls: the factors impacting fintechs’ response to fraud

Fraud rates among UK fintechs are rising, and as they do they are costing these businesses significant amounts of money. According to Alloy’s 2025 State of UK Fraud Report, in 2024, more than two in three UK fintechs reported an annual increase in fraud instances. Four in five of them admitted to losing upwards of £500,000 to fraud in the 12 months to last October; almost half of these fintechs lost as much as £5 million. 

For fintechs and banks, the issue of managing the fallout of escalating fraud has become a commonplace part of their everyday operations. The problems they endure are universal. Fortunately, however, so too are the factors that impact how these fintech businesses respond to fraud instances. 

Working with multiple UK fintechs that are all dealing with the challenges, I’ve come to realise that a vital key to resolving fraud lies in these fintechs focusing more on these factors - three in particular - and the lessons we can take away from them. 

Regulatory compliance weighs more heavily than the risk of financial or customer losses

The UK is home to one of the most sophisticated anti-fraud regulatory regimes. However, domestic regulatory innovation can not solve the problem on its own. Fraud is a global, borderless issue. 

This creates challenges for all fintech companies - in particular, those that operate internationally or want to extend their services to non-UK customers. Ambitious fintech businesses are negotiating multiple regulatory regimes against a backdrop of AI-driven fraud that moves and adapts faster than regulations can possibly keep up. 

When asked to rank the most concerning consequences of fraud, almost every fintech C-Suite leader surveyed for Alloy’s report (93%) put regulatory penalties and reputation damage at the top of the list. These consequences even ranked ahead of direct financial losses and the loss of clients (both 87%) - both consequences that are unarguably critical to the ongoing viability of a fintech business.

Fintechs must strike a continual balance between protecting themselves and their customers from fraud, while delivering the sort of financial experience their customers expect. To achieve both goals, we’re seeing fintechs start to adopt a more holistic approach to preventing financial crime through the customer lifecycle. Perpetual KYC/KYB policies, for instance, are helping fintechs turn customer risk assessment into a dynamic, continuous and frictionless process, rather than restricting KYC/KYB to onboarding and relying on remediation later. 

Crime rings are behind the majority of fraud events

Three quarters (73%) of UK fintechs report that organised crime rings are responsible for the majority of the fraud events identified by their businesses. Less than a fifth (19%) attribute most fraud to customers acting knowingly (known as ‘first party fraud’) and just 8% believe customers who are coerced account for the most fraud cases. 

AI is a blessing and a curse for fintechs. Fraud is, at its most basic, a numbers game. Thanks to AI, that game is getting faster, cheaper, more international, emboldening crime rings as they get ever more successful. There’s a flipside, however, that some fintechs are investing into: as fraud volumes grow, they leave behind more and more data signals that fintechs can track to distinguish the bad actors from genuine customers. The opportunity now lies in using AI and data-sharing to track certain behaviours, establish patterns created by criminal groups and use that knowledge to eliminate them.

Inadequate internal resources persist, but investment to prevent fraud is growing

Of the UK fintechs that say their organisations are not sufficiently equipped to respond to growing fraud threats, almost three in five (57%) identify insufficient people, tools and access to data as the top reasons for their unpreparedness. 43% say their current fraud prevention controls are insufficient. 

It’s certainly not easy for fintechs to equip themselves against an enemy that is continually shapeshifting. But it’s encouraging to see that the vast majority of firms look to fraud prevention investment as an outlay to support future growth.

In the face of these deficits, 96% of UK fintechs report that they are investing in fraud prevention in 2025. There’s a consensus that these investments pay off: 92% of respondents agree that the amount of money their organisation saves thanks to fraud prevention outweighs its cost. Fintechs cite identity risk solutions as their top investment for reducing fraud rates. 

Fraud is an ever-present enemy. It’s not new, it’s not novel, but it’s continually evolving. Fraud can be fought, it can be curbed, but it won’t be eradicated. The opportunity for fintechs is not to end fraud once and for all, but to focus on the factors that impact how they respond to the dangers it presents. Then, attention stands to turn to which fintechs can reimagine the fight against fraud from ‘cost centre’ to ‘growth lever’.