Navigating fraud and reputational risks in community banking

In today’s rapidly evolving financial landscape, community banks face mounting challenges from increasingly sophisticated fraud schemes and the reputational damage they can cause. As highlighted in Bankers’ Bank’s Q2 Risk Management webinar, fraud is no longer just an operational nuisance — it’s a systemic threat demanding strategic, enterprise-wide responses..Fraudsters are leveraging generative AI to create synthetic identities, deepfake videos, and phishing campaigns that bypass traditional security measures. Application fraud, check fraud, account takeovers, and elder abuse are all on the rise, with synthetic identity fraud alone projected to cost U.S. banks $23 billion annually by 2030. The speed and scale of these attacks, especially through faster payment systems, leave banks with little time to react.To counter these threats, banks must adopt dynamic, AI-driven fraud detection tools, enhance employee training, and foster cross-departmental collaboration. Behavioral biometrics, real-time transaction monitoring, and consortium-based identity verification are no longer optional — they’re essential.Equally critical is managing the reputational fallout from fraud. As the webinar emphasized, reputational risk is systemic. A single unresolved fraud incident can spiral into a public relations crisis, especially in the age of social media. Customers who feel unheard or unsupported may turn to public platforms, amplifying negative sentiment.Proactive communication is key. Banks should educate customers about fraud risks, maintain consistent internal messaging, and ensure frontline staff are equipped to handle sensitive interactions. Monitoring social media for early warning signs and using marketing to reinforce trust and transparency can help mitigate reputational damage.Ultimately, navigating fraud and reputational risk requires a cultural shift — one that prioritizes agility, shared accountability, and a customer-first mindset. As fraud evolves, so must the defenses and the commitment to preserving public trust. David Paxton is senior vice president for risk management solutions at Madison, Wis.-based Bankers’ Bank.