When a criminal gains access to your bank account and steals a portion of your savings, the first thing you want is to get your money back. But if you’re like many customers, that’s not quite enough. You want the fraudster nabbed.
Banks spend millions each year attempting to track down the perpetrators of account fraud and recover lost funds, with a relatively low success rate. Investigating fraud cases can help banks tighten their security measures, prevent future theft and, yes, sometimes recoup a fraction of the funds.
However, a new study found that these investigations can pay off for banks in another major way: Finding the bad actor is a remarkably effective way to build customer loyalty.
The five-year study, conducted by professors from the University of Notre Dame and Carnegie Mellon University, found that when a bank identifies the fraudster, affected customers are 62% less likely to leave compared with customers who never experienced fraud at all. If the criminal isn’t identified, victims are 40% more likely to leave the bank than the average customer.
That a customer’s perception of the bank would improve after a successful resolution to a problem isn’t a novel concept. The phenomenon even has a name: the service recovery paradox.
But what makes it unusual here is that in nearly all of the cases the researchers analyzed, the bank had already refunded the customer’s money. So, in theory, the customer should have been happy. Instead, what really made the difference for the bank was identifying the perpetrator.
“We never thought in our wildest dreams that we’d actually find this in our study,” says Vamsi Kanuri, associate professor of marketing at Notre Dame’s Mendoza College of Business and one of the researchers who conducted the study. “Banks were very surprised.”
How Banks Respond to Fraud Reports
Consumers reported losing more than $12.5 billion to fraud in 2024, a 25% increase from the year prior, according to the Federal Trade Commission. While there are various forms of financial fraud, two that commonly target your bank account are imposter scams and account-based fraud.
Imposter scams involve a criminal convincing you to transfer your money to them. In account-based fraud cases, the bad actor gains access to your account and withdraws or transfers your money. The difference is important when it comes to how banks must respond.
Banks are required by law to refund fraud losses when you didn’t authorize the transfer, as long as you report it within a certain amount of time. However, they’re not obligated to refund losses for transactions you authorize, even if you unwittingly sent money to a scammer.
In cases of unauthorized transfers, banks generally investigate the transaction and attempt to follow the money, even after they’ve reimbursed the customer. When the investigation concludes, the affected customer will typically receive a message notifying them whether the bank was able to find the perpetrator.
‘A Sigh of Relief Among Bank Execs’
But fraud investigations, along with other costs associated with fraud defense, can add up to become a significant line on a bank’s balance sheet. A 2025 study by LexisNexis Risk Solutions found that every $1 of fraud losses costs American financial institutions more than $5.
And banks don’t have a winning record when it comes to successfully tracking down fraudsters. In fact, a majority of banks say they recover less than 25% of fraud losses, according to a 2019 KPMG survey.
Those realities can occasionally put banks on the defensive when shareholders question how much they should be spending on their fraud departments.
“There’s this tension now,” says Kanuri. “Why invest if banks are unable to find the perpetrator? We consistently heard from these banks that this is a real challenge to constantly defend their investments in the fraud department.”
A major U.S. bank approached the authors of the study years ago, offering access to a large set of customer data for the research.
Kanuri, along with fellow Notre Dame professor Sriram Somanchi and Carnegie Mellon professor Rahul Telang, analyzed five year’s worth of data from more than 420,000 customers to examine how the bank’s response to account-based fraud impacted customer retention.
The researchers found it had a significant impact. Affected customers were much less likely to leave compared with customers who never experienced fraud at all. If the criminal was never identified, victims were significantly more likely to leave the bank than the average customer.
“There was a sigh of relief among the bank execs,” says Kanuri. “Now this particular bank that collaborated with us is able to use our evidence as proof for making more investments in safeguarding customer accounts.”
What If the Bank Blames You? And Other Study Findings
The researchers found several other notable trends.
— Longtime and active customers are more forgiving. If a customer has been with the bank for many years or if they frequently interact with bank representatives, they were less likely to leave the bank even if it couldn’t identify the fraud perpetrator.
— Consumers point to trust as key factor. In a follow-up experiment with a group of consumers, the authors found that trust in the bank’s ability to safeguard their money is the biggest factor in establishing loyalty.
— Fraud victims were much more likely to leave if the bank blamed them. Kanuri says that the research looked at some cases where the bank essentially faulted the customer for authorizing a transaction, even if it was part of a scam. Perhaps unsurprisingly, these were likely to end with the bank losing the customer. “Not only did the customers actually experience fraud, now they have a scenario where the firm’s coming back and blaming them — for the right reasons — and they get offended,” says Kanuri.
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Should Banks Hunt Down Fraudsters? One Study’s Surprising Findings originally appeared on usnews.com
