By Dr. Eivilė Čipkutė, President, Lithuanian Banking Association (LBA)
Unilateral compensation might sound like consumer protection, but is it?
Financial fraud is a rapidly growing epidemic. Across the world, digital fraudsters are making ever more aggressive use of regulatory blind spots, social-media platforms, artificial intelligence (AI) and human psychology. At the same time, political pressure is mounting for banks to be held accountable for the losses their customers suffer due to fraud.
Requiring banks to reimburse fraud victims may look like a simple, straightforward solution to some of the world’s policymakers as they grapple with how to protect consumers. In reality, it’s a policy shortcut that risks embedding the problem rather than resolving it. A better alternative to compensation schemes that shift the burden onto a single sector is a shared-responsibility model that confronts fraud at its root.
A better alternative to compensation schemes that shift the burden onto a single sector is a shared-responsibility model that confronts fraud at its root.
However politically appealing it may be, financial compensation does not solve the problem of fraud. Criminals simply adapt, targeting the weakest links in the system. Without coordinated action across the entire ecosystem, fraud will remain a persistent threat to society.
A rising tide
The scale of the fraud problem is striking. A joint ECB–EBA (European Central Bank- European Banking Authority) report assessed payment fraud in the European Economic Area (EEA) as amounting to €4.3 billion in 2022 alone and €2 billion in the first half of 2023. Card fraud remains the most prevalent, accounting for roughly 70 percent of fraudulent activity by value. But incidents involving credit transfers and direct debits are also on the rise.
Beyond just payments, Europol and Nasdaq Verafin have estimated that financial fraud in Europe exceeds $100 billion annually and is part of a broader global surge in organised digital crime.
Media platforms, messaging services and phone networks have emerged as key enablers. More and more scams come from outside the banking system—via fake ads, phishing messages, investment opportunities and hijacked accounts. But when those scams succeed, banks are frequently the sole players considered legally and financially responsible.
The United Kingdom’s mandatory reimbursement scheme for certain types of authorised push payment (APP) fraud is often cited as a model in continental policy discussions. However, UK early data shows that overall fraud volumes did not decline after its implementation. Those engaged in fraud merely adapted. While the new rules shifted the financial burden, they failed to reduce criminal activity.
Compensation alone is a dead end. The UK’s experience demonstrates that placing the full responsibility on banks does not solve the problem; it merely distorts the system.
Why asymmetric liability fails
Proposals to make financial institutions the default “payers of last resort” overlook a critical fact: Most fraud originates outside the financial sector. Banks have invested heavily in fraud detection, real-time monitoring and consumer education, but they have no control over the security practices of social-media platforms, telecom (telecommunications) providers or consumers themselves.
A Revolut fraud report found that 62 percent of the global scams reported in the first half of 2024 originated on Meta platforms. Facebook alone accounted for 39 percent, more than twice the share of the next most frequently used platform, WhatsApp. Yet despite this, the social-media giant has shown little willingness to take responsibility for protecting society from such costly harm.
When platforms face no financial, compliance or broader reputational risks, they lack both the incentive and the motivation to take meaningful action against fraud. Fraudsters quickly exploit this vacuum, operating at scale, leaving banks to deal with the fallout.
The importance of joint accountability
Against this backdrop, momentum is building for a shared-responsibility model that aligns the interests of all the actors in the fraud ecosystem. Such a model would spread liability out on a proportional basis across banks, platforms, telecom providers, regulators and consumers, based on where and how the failures in question occurred.
Fraud is a systemic issue. It is not caused by a single actor. The only sustainable solution is a framework whereby all the parties play their parts: from platforms and payment institutions to regulators. Shared responsibility isn’t about shifting blame; it’s about aligning incentives to strengthen every link in the chain.
A critical pillar of the shared-responsibility approach is information sharing. Today, financial institutions often fight fraud in isolation, relying on fragmented intelligence. Criminals exploit the gaps, moving swiftly between platforms and jurisdictions. A robust model would require real-time data sharing among financial institutions and the relevant authorities, enabled by interoperable infrastructure and a clear legal framework. The European Union (EU) has begun to address this need through initiatives such as the Digital Services Act (DSA), which increases platforms’ obligations to moderate harmful content, and new AML/CFT (anti-money laundering/combatting the financing of terrorism) mechanisms, which support data exchange. However, fraud-prevention efforts remain fragmented. A unified strategy is lacking.
Building the future together
Fraud practices are evolving fast. Generative AI (GenAI) is already being used to create fake voices, phony identities and highly convincing scam narratives. Without systemic defences, compensation schemes will only become more costly as criminals expand and adapt their operations.
A shared-responsibility approach, by contrast, spreads both accountability and defence. If social-media platforms are held responsible for the scams they host, they will have stronger incentives to invest in prevention. If telecom operators are held accountable for fraud delivered via their mobile channels, they will be more motivated to strengthen their safeguards. If regulators define clear protocols and facilitate real-time data sharing, banks will be able to respond faster and more effectively. And if consumers are educated and equipped to recognise scams, many attacks can be stopped long before they even reach the financial system.
Such a framework would promote a more secure, equitable and resilient financial ecosystem. It offers what compensation alone cannot: prevention, speed and systemic strength. By ensuring that every actor—each bank, platform, telecom, regulator and consumer—is part of the solution, shared responsibility offers the only truly sustainable path to long-term protection from and elimination of fraud.
A policy crossroads
Mandatory reimbursement schemes seem to offer a compelling narrative: Consumers are protected, and banks cover the losses. But while politically attractive, this approach does little to stop fraud at its source. In contrast, shared-responsibility models are more complex to design but are far more effective at preventing fraud before it happens.
The banking sector’s position is clear: Compensation should be a last resort, not the default. The primary goal must be prevention that is built on shared liability, real-time information sharing and coordinated regulatory action.
Policymakers around the world currently face a critical choice. They can opt for the “quick fix” of shifting costs onto banks and hoping the problem fades. Or they can take the more difficult, but ultimately smarter, route of building a shared-responsibility framework that will drive fraud rates down in the long term.
We must remember: Fraud is a crime, and like any crime, it has real perpetrators. Individuals who exploit confusion, technological loopholes and transaction speeds to steal money are responsible, yet public debate does not always prioritise holding them accountable.
Instead, attention often shifts to banks: Should they be the ones to compensate? This reflects the wider challenges that states and law-enforcement agencies face in solving and addressing cybercrime.
Banks, meanwhile, already prevent many fraudulent attempts through significant investments in technology and specialised teams—yet they remain visible targets simply because that’s where the money is.
It is worth considering that while shifting the burden onto banks may appear to be a low-hanging fruit, it can obscure the root causes, alter incentives and potentially reduce the role of the state.
Lithuania’s vantage point
In Vilnius, these debates are not theoretical. They’re part of daily life. Lithuania today is one of Europe’s leading fintech (financial technology) hubs, home to hundreds of payment and e-money institutions. The rapid growth of the sector has spurred innovation, but it has also increased exposure to the risks of cross-border fraud.
The scale of the challenge is striking. According to 2024 research by Norstat, nearly every resident of the three Baltic countries experienced multiple fraud attempts, whether via deceitful phone calls, emails or text messages. That includes 79 percent of Lithuanians, 85 percent of Latvians and 86 percent of Estonians.
Lithuania’s experience demonstrates both the advantages and the vulnerabilities of having a digital financial ecosystem. We know firsthand that fraud doesn’t respect borders—or sectors. That is why EU-level decisions are so critical: They will impact the resilience of our financial systems for years to come.
Dr. Eivilė Čipkutė was appointed President of the Lithuanian Banking Association in 2020. Previously E. Čipkutė worked as a senior policy advisor at the European Investment Fund office in Brussels, Belgium. She also served as senior advisor to the World Bank’s Office of the Executive Director of the Nordic and Baltic Countries at World Bank’s headquarters in Washington, D.C., USA. Before continuing her career in international institutions, E. Čipkutė worked at the Lithuanian Ministry of Finance, where she headed the Financial Markets Policy Department, was the board member and chairperson of several state-owned companies. Moreover, E. Čipkutė represented Lithuania in the Committees of the EU Council and the European Commission, dedicated to Finance and Banking. E. Čipkutė has obtained master’s degree in international business at Georgetown University in the USA and has defended her doctoral dissertation in the field of social sciences and economics at Vilnius University.