As technology continues to rapidly advance (i.e. generative AI, large language models, quantum computing, etc.), financial institutions (FIs) must evolve while balancing opportunity and risk. FIs are embracing advanced technology to meet rising customer expectations for frictionless digital experiences and streamlined customer support. However, these advancements also introduce new vulnerabilities, especially when it comes to customer verification and real-time payments. Institutions of all sizes are navigating an increasingly complex regulatory landscape while also contending with sophisticated cyber threats. For smaller FIs, limited resources make it even more challenging to keep pace. As fraud tactics evolve, institutions must reassess their defense strategies to ensure they are agile, scalable, and secure. Let’s examine the common challenges FIs face today in customer verification and real-time payments, and ways they can be one step ahead of fraudulent activity.

Challenges in Customer Verification

One of the most fundamental aspects of any financial service is customer verification. While essential, customer verification can be complicated to manage. Regulatory mandates such as Know Your Customer (KYC) and Anti-Money Laundering (AML) rules are growing more complex, and customers expect fast, frictionless onboarding. It can be difficult for FIs to promise both without security or customer experience falling through the cracks.

For smaller FIs, customer verification challenges are often compounded by budget constraints and limited staffing. While large institutions may have entire departments dedicated to compliance, smaller FIs often rely on a few individuals that may take on a multitude of responsibilities within the organization and aren’t focused on implementing the latest customer verification strategies. Due to their limited budget, smaller firms also struggle to invest in next-generation customer verification solutions like biometric authentication or dynamic KYC systems. Additionally, international rules about customer verification procedures add another layer of complexity that smaller institutions often lack the expertise to manage effectively.

Access to usable customer data is another issue. While large institutions benefit from proprietary data systems or partnerships with aggregators, smaller firms often lack the scale to negotiate similar access. This disparity puts them at a disadvantage in terms of both fraud prevention and customer experience optimization.

The Growing Threat of Real-Time Payments Fraud

Fraud in real-time payments is escalating, and becoming harder to stop. The speed at which real-time transactions process creates a narrow window for detection and response. Once funds are transferred, they’re often irretrievable, especially if moved to cold wallets or through anonymizing platforms. This is even more challenging for smaller institutions that may not have real-time monitoring systems or automated fraud detection tools in place.

Emerging threats like synthetic identity fraud and deepfake technology add to the complexity. While larger institutions are more likely to pilot advanced tools to detect these emerging risks, smaller firms typically don’t invest in piloting new technology due to financial and resource limitations. These institutions also tend to be excluded from industry consortiums that share intelligence and best practices, leaving them without access to critical insights when it comes to fighting real-time payment fraud.

Solutions for FIs to Strengthen Fraud Defenses

To address these growing challenges, FIs must prioritize a strategic shift in their approach to risk management. The most immediate opportunity is the implementation of cloud-based, real-time monitoring and behavioral analytics solutions. These platforms reduce the lag of manual reviews and provide real-time alerts on suspicious activity. However, many FIs struggle to integrate these advanced tools effectively when managing them in-house, often resulting in siloed systems, higher maintenance costs, and reduced response times. Instead, partnering with an orchestration layer provider addresses this challenge by bringing together multiple fraud, risk, and compliance tools into a unified ecosystem. An orchestration approach not only accelerates deployment and simplifies integration but also ensures that solutions evolve in step with emerging threats, delivering stronger protection and a more seamless customer experience without requiring FIs to build and maintain complex infrastructure on their own.

FIs should also look to enhance customer authentication protocols. Moving beyond basic SMS-based, multi-factor authentication to more secure app-based or biometric methods can greatly reduce account takeovers and identity fraud. Institutions should also work to educate and encourage customers to adopt these tools and possibly explore 3-factor authentication as well.

Participation in fraud-sharing networks and consortium programs is another critical step. By engaging in these communities, institutions can stay ahead of emerging threats and learn from the experiences of others. For many smaller FIs, outsourcing to managed service providers (MSPs) can be a cost-effective way to access advanced fraud detection capabilities and regulatory expertise without overstretching internal resources.

Lastly, strategic investment in AI and automation is key. Whether used to streamline compliance, detect anomalies in transaction patterns, or manage customer identity verification, AI delivers scalable and efficient security operations. But to truly maximize these benefits, FIs should consider partnering with an orchestration layer provider. Orchestration layer partners unify disparate fraud and risk tools into a single, flexible framework, enabling FIs to adapt quickly to evolving threats while ensuring seamless customer experiences. This approach not only reduces complexity and cost but also drives stronger, outcome-based risk management that balances security with customer trust.

Conclusion

FIs are facing rapid technological evolution, mounting fraud threats, and increasing regulatory scrutiny. While these challenges may seem daunting, especially for smaller institutions, they are not insurmountable. By embracing cloud-based solutions, adopting an orchestration approach to technology, participating in industry consortiums, and leveraging AI-driven technologies, institutions can significantly enhance their defenses. The key lies in strategic prioritization and collaboration, focusing not just on reacting to fraud, but on building adaptive, proactive systems that evolve with the threat landscape. In this era of digital finance, security is no longer a back-office function; it’s a cornerstone for customer trust and institutional resilience.