How Banks and Fintechs Can Combat Fraud in Embedded Finance

Summary

Fraud in embedded finance is evolving faster than most institutions can react, and the consequences are increasingly systemic. Traditional approaches manual investigations, delayed Suspicious Activity Reports (SARs), and internal case management are proving too slow and siloed to combat the rise of first-party fraud and synthetic identities. As fintech enters a new maturity phase, the need for collaborative, real-time fraud infrastructure is no longer optional; it’s existential.

John Barbella, founder and president of Neighborly, is building what he calls a “Check Systems for Fintech.” His mission: to help banks and fintechs form a cooperative defense layer against repeat fraud actors, especially those exploiting fragmented systems across issuing banks, prepaid programs, and BaaS (Banking-as-a-Service) platforms. Through anonymized data-sharing and proactive alerting, Neighborly turns individual account losses into ecosystem intelligence, helping institutions detect and prevent fraud faster.

A major challenge identified is the misalignment of incentives. In Fintech 1.0, many companies chased high valuations by inflating account numbers often with little concern for whether those accounts were active, real, or monetizable. Dormant accounts, once seen as benign, have become fertile ground for fraud. And with fraudsters leveraging AI and machine learning to scale operations, isolated efforts by individual banks are simply not enough.

Neighborly offers a new playbook: coordinated defense, early warning systems, and a shared data network that turns each institution’s insights into industry-wide protection. By recognizing fraud not just as an internal threat but as a systemic contagion, financial institutions can finally begin to move from reactive losses to proactive resilience.

Meet the Expert

John Barbella brings over 30 years of experience in financial services, including deep expertise in payments, prepaid programs, and dispute management. He’s held leadership roles at Deluxe and Bancorp, where he witnessed firsthand the operational inefficiencies and systemic vulnerabilities in fraud response. With Neighborly, Barbella is applying his insider knowledge to help modernize fraud prevention infrastructure for the fintech era transforming risk mitigation from a back-office chore into a strategic, data-driven advantage.

The Big Idea

Fraud in embedded finance is no longer just a cost of doing business, it’s a systemic risk amplified by disconnected institutions, valuation-driven growth, and reactive processes. The opportunity lies in flipping the paradigm: building networked fraud resilience through shared intelligence, preemptive alerting, and real-time collaboration between fintechs and banks.

As Barbella puts it:

“We’re not building rocket science. We’re just creating a simple, anonymized way for banks to share fraud signals so the same actor can’t burn one institution after another without detection.”

Neighborly’s model reframes fraud prevention as an ecosystem challenge, calling on fintechs and banks alike to contribute to a collective immune system that gets smarter with every incident.

Key Takeaways

First-party fraud is thriving due to weak coordination.
Many fintechs still lack the infrastructure to track fraud patterns across issuing partners. Fraudsters take advantage of this fragmentation, knowing that one rejected claim at Bank A doesn’t stop them from hitting Bank B.
Dormant accounts are now high-risk attack surfaces.
Once valued for boosting user metrics, inactive or synthetic accounts now serve as sleeper cells for fraud. Monitoring dormancy must become part of the fraud risk framework.
Proactive alerting changes the game.
Neighborly’s pilot programs show that banks can flag compromised accounts 30–40 days earlier when using real-time payroll shift data before losses hit the ledger.
“Herd immunity” is possible but only with participation.
Banks not participating in collaborative fraud networks become soft targets. As Barbella warned:

“Fraudsters will figure out faster than we will where the protections are and where they aren’t.”
Fintech 2.0 is about sustainable growth, not vanity metrics.
The shift from hyper-growth to resilient infrastructure requires rethinking account quality, fraud controls, and partner alignment.

Tools, Strategies, or Frameworks Mentioned

Neighborly’s Shared Intelligence Network
A cooperative platform allowing banks and fintechs to report and detect fraud in real time using anonymized data signals, with alerting capabilities at the routing number and account level.
Proactive Payroll Shift Monitoring
Identifying sudden changes in payroll destinations as early indicators of fraud, allowing financial institutions to act weeks before official SARs would trigger.
Dispute Intelligence Aggregation via APS
Partnering with APS to consolidate dispute data across platforms and provide a clearer view of emerging fraud patterns at the earliest possible stage.
Synthetic ID Pattern Detection
Analyzing behavioral dormancy and activation patterns across multiple platforms to identify synthetic accounts before they strike Final Thoughts

Final Thoughts

“Fraud in embedded finance isn’t just a series of isolated incidents, it’s a pattern of behavior we’ve failed to coordinate against.”

Neighborly’s approach underscores the importance of infrastructure that is not just secure, but interoperable, proactive, and community-driven. In a landscape where fraud tactics are evolving rapidly often powered by the same AI tools used for good institutions can no longer afford to operate alone.

Fintechs that survive and thrive in the next decade will be those that embrace network effects not just for growth, but for defense.

Discover how Neighborly is helping fintechs and banks combat fraud through real-time alerts, shared intelligence, and proactive account monitoring.

How Banks and Fintechs Can Stay Ahead of Fraud in the Embedded Finance Era