New research indicates that seven in ten UK fintech companies have experienced a surge in fraud over the past year.

Alloy's State of UK Fraud Report has revealed alarming figures, with 79% of fintechs in the UK reporting losses of at least £500,000 due to fraudulent activities in the 12 months leading to October 2024, as reported by City AM.

In a staggering revelation, two in five fintech businesses logged financial impacts between £1m and £5m, while nearly 9% encountered monumental losses exceeding £5m within the same period.

The report, based on insights from 118 director-level executives within the fintech sector, found that almost three-quarters attribute the majority of fraud incidents to the activities of organised crime syndicates.

In a discussion with City AM, James Baston-Pitt, Head of Growth UK at Alloy, said: "Fraudsters are looking to exploit gaps in the system, they will work nine to five and will move around."

He further noted the changing landscape of financial fraud, stating: "The methods of [money moving] have changed."

Emphasising alterations in crime tactics, Baston-Pitt explained: "Rather than being in branch and impersonating they are working with fintechs in a none face-to-face world".

Baston-Pitt also shed light on the paradoxical role of AI in fraud proliferation, acknowledging its benefits and challenges. "It can help drive better efficiency and detect fraud... the threat is that AI is reducing the barrier of effort for fraudsters," he told City AM.

Describing the relentless nature of these criminal entities, Baston-Pitt compared fraudsters to predators, saying: "Fraudsters are like sharks going up and down a shark net looking for gaps within that net to be able to exploit, vulnerabilities in regulation or how businesses operate and AI is ultimately reducing the barrier or effort."

Above all, fintech firms are gripped by fears of financial penalties and reputational damage as top concerns amidst this fraud onslaught.

According to Alloy's report, 43 per cent of firms acknowledged that their current fraud prevention controls were insufficient.

Nearly three in five cited a lack of staffing, tools, and access to data as the primary reasons for their unpreparedness to tackle fraud.

Baston-Pitt emphasised the importance for firms to recognise the "constantly evolving" nature of fraud and their "responsibility to keep the trust in order to keep money moving."

He highlighted the potential for fraudsters and associated risks to inflict up to a decade's worth of damage, urging firms to act to prevent excessive harm.

A significant 93 per cent of fintech c-suite leaders surveyed expressed concern over regulatory penalties and reputation damage as the most worrying outcomes of fraud, ranking these above direct financial losses and client attrition, which stood at 87 per cent.

The Payment System Regulator (PSR) mandated reimbursement for victims of Authorised Push Payment (APP) scams starting in late 2024, requiring both sending and receiving organisations to bear 50 per cent of the reimbursement costs.

57 per cent of firms reported that regulatory mandates are prompting increased investment in fraud prevention measures and new technologies.

This development comes in the wake of Prime Minister Sir Keir Starmer and Chancellor Rachel Reeves' decision last week to dissolve the PSR as part of the Government's strategy to 'cut the red tape' and stimulate economic growth.