According to Alloy’s 2025 State of Fraud Report, financial institutions are seeing a noticeable rise in fraud: Nearly 1 in 3 financial organizations experienced direct fraud losses surpassing $1M, higher than in 2024 when the rate was 1 in 4. The same report found that 60% of financial institution respondents experienced an increase in fraud attacks affecting consumer and business accounts.
“As the industry becomes more globalized and digitized, it allows fraudsters to use things like AI to break smaller institutions' defenses,” said Alex Nguyen, who works on Partnerships at Narmi. "We need technology that matches the technology being used against them, while also leveraging larger network effects.”
One of Narmi’s most important partners in defending community banks and credit unions around the country is Alloy itself. We recently held a conversation with Alloy’s Jason Ioannides and UFCU’s Russell Shugart on how they partner in conjunction with Narmi to provide scalable, flexible defenses within an ever-evolving fraud landscape.
“Figuring that someone is who they say they are in our current technological environment is quite a bit more difficult than it was back in 2012, and way more difficult than it was in 1992,” said Ioannides.
The dynamism of this fraud environment is not lost on the financial institutions actually within it, and UFCU has an interesting way of describing it. “Fraud for UFCU, it’s always been seasonal, and it’s also been cyclical,” said Shugart. “And what we’ve seen happen is those seasons have grown shorter, so it’s happening more frequently, and the cycles have grown longer, which means that they’re lasting longer.”
Given that the advent of AI technologies has allowed fraudsters to implement their tactics at scale, and that UFCU found itself in a situation where it was saddled with a legacy provider that would not convert the digital-native students that make up the bulk of their membership, the credit union went searching for a solution: “We had to work with someone who could stand us up very quickly and had an identity solution that was flexible enough to work with these younger individuals.”
Narmi was able to work with UFCU to do exactly that, and work in concert with Alloy to refine its models and calibrate guardrails. One of the credit union’s biggest priorities was not only to gate bad actors, but to make sure that they did not block out real applicants who have untraditional applicant profiles, but are nonetheless honest people in need of banking services.
“The people who tend to fall off most frequently in an overly restrictive policy are thin-file, new to the country, non-citizens — extremely bankable people who are underrepresented in the population of financial institutions in the country.”
“Someone is trying to steal from me, but there’s also three or four really good people that are trying to get in, that are unbanked, that need our services so they can get their government deposit, so they can get the loan they need, so they can have a car to get to and from work,” said Shugart. “Lots of little trial and error to get all of this into a position where it becomes a powerful platform where we have 85% submission, and we usually convert anywhere between 40-65% of those open accounts.”
The conversation reflects a troubling trend in the middle market of banking: in many ways, these institutions receive outsized attention from fraudsters.
According to Alloy, mid-market banks reported the highest levels of fraud on average. 56% of mid-market banks reported over 1,000 fraud cases — higher than any other sector of the banking industry. This was a surprising finding, and Alloy mentions that this could be due to discrepancies in reporting methods, but "[a]lternatively, enterprise banks may be perceived to have better fraud controls than smaller financial institutions, causing them to be targeted by fraudsters less frequently.”
Even more alarming for financial institution stakeholders was the volume of losses: "Mid-market banks and credit unions reported the highest percentage of $5-10M losses. Mid-market was also the only sector to report losses over $10M."
These startling numbers underscore the importance of providing ironclad defenses against fraud for consumers and staff alike – an ethos that defines our approach to Narmi Guard, which offers integrated defenses not just during account opening, but also ongoing transaction monitoring.
Not only does this approach provide full lifecycle security for users, but the breadth of comprehensive data pulled from multiple stages of their journey offers a complete view of fraud – one that teams can use to be more proactive about security, and use in other ways as well.
“Reducing fraud is the obvious benefit, but with a complete fraud stack, financial institutions can also improve efficiency, streamline customer experience, and unblock innovation at scale,” said Martin Lindholm, Director of Technical Product Management at Narmi.
“It’s an arms race between fraudsters and financial institutions. We want to make sure that community banks and credit unions save not only their consumers’ financial health, but also their own resources.”
