Fraud is definitely nothing recent within the financial services sector, but recently there’s been an acceleration that’s value analyzing in greater detail. As technology develops and evolves at a rapid pace, criminals have found much more routes to interrupt through compliance barriers, resulting in a technological arms race between those attempting to guard consumers and people seeking to cause them harm. Fraudsters are combining emerging technologies with emotional manipulation to scam people out of 1000’s of dollars, leaving the onus firmly on banks to upgrade their defenses to effectively combat the evolving threat.

To tackle the increasing fraud epidemic, banks themselves are beginning to benefit from recent technology. With banks sitting on a wealth of knowledge that hasn’t previously been used to its full potential, AI technology has the aptitude to empower banks to identify criminal behavior before it’s even happened by analyzing vast data sets.

Increased fraud risks

It’s positive to see governments the world over take a proactive approach with regards to AI, particularly within the US and across Europe. In April the Biden administration announced a $140 million investment into research and development of artificial intelligence – a powerful step forward little question. Nevertheless, the fraud epidemic and the role of this recent technology in facilitating criminal behavior can’t be overstated – something that I consider the federal government must have firmly on its radar.

Fraud cost consumers $8.8bn in 2022, up 44% from 2021. This drastic increase can largely be attributed to increasingly available technology, including AI, that scammers are starting to govern.

The Federal Trade Commission (FTC) noted that essentially the most prevalent type of fraud reported is imposter scams – with losses of $2.6 billion reported last 12 months. There are multiple varieties of imposter scams, starting from criminals pretending to be from government bodies just like the IRS or members of the family pretending to be in trouble; each tactics used to trick vulnerable consumers into willingly transferring money or assets.

In March this 12 months, the FTC issued an extra warning about criminals using existing audio clips to clone the voices of relatives through AI. Within the warning, it states “Don’t trust the voice”, a stark reminder to assist guide consumers away from sending money unintentionally to fraudsters.

The varieties of fraud employed by criminals have gotten increasingly varied and advanced, with romance scams continuing to be a key issue. Feedzai’s recent report, The Human Impact of Fraud and Financial Crime on Customer Trust in Banks found that 42% of individuals within the US have fallen victim to a romance scam.

Generative AI, able to generating text, images and other media in response to prompts has empowered criminals to work en masse, finding recent ways to trick consumers into handing over their money. ChatGPT has already been exploited by fraudsters, allowing them to create highly realistic messages to trick victims into considering they’re another person and that’s just the tip of the iceberg.

As generative AI becomes more sophisticated, it’s going to turn out to be even harder for people to distinguish between what’s real and what’s not. Subsequently, it’s vital that banks act quickly to strengthen their defenses and protect their customer bases.

AI as a defensive tool

Nevertheless, just as AI may be used as a criminal tool, so can also it help effectively protect consumers. It will probably work at speed analyzing vast amounts of knowledge to come back to intelligent decisions within the blink of a watch. At a time when compliance teams are hugely overworked, AI helps to come to a decision what’s a fraudulent transaction and what isn’t.

By embracing AI, some banks are constructing complete pictures of shoppers, enabling them to discover any unusual behavior rapidly. Behavioral datasets corresponding to transaction trends, or what time people typically access their online banking can all help to construct an image of an individual’s usual “good” behavior.

This is especially helpful when spotting account takeover fraud, a way utilized by criminals to pose as real customers and gain control of an account to make unauthorized payments. If the criminal is in a distinct time zone or starts to erratically attempt to access the account, it’ll flag this as suspicious behavior and flag a SAR, a suspicious activity report. AI can speed this process up by mechanically generating the reports in addition to filling them out, saving cost and time for compliance teams.

Well-trained AI also can help with reducing false positives, an enormous burden for financial institutions. False positives are when legitimate transactions are flagged as suspicious and may lead to a customer’s transaction – or worse, their account – being blocked.

Mistakenly identifying a customer as a fraudster is certainly one of the leading issues faced by banks. Feedzai research found that half of consumers would depart their bank if it stopped a legitimate transaction, even when it were to resolve it quickly. AI can assist reduce this burden by constructing a greater, single view of the shopper that may work at speed to decipher if a transaction is legitimate.

Nevertheless, it’s paramount that financial institutions adopt AI that’s responsible and without bias. Still a comparatively recent technology, reliant on learning skills from existing behaviors, it could possibly pick up biased behavior and make incorrect decisions which could also impact banks and financial institutions negatively if not properly implemented.

Financial institutions have a responsibility to learn more about ethical and responsible AI and align with technology partners to watch and mitigate AI bias, whilst also protecting consumers from fraud.

Trust is a very powerful currency a bank holds and customers need to feel secure within the knowledge that their bank is doing the utmost to guard them. By acting quickly and responsibly, financial institutions can leverage AI to construct barriers against fraudsters and be in one of the best position to guard their customers from ever-evolving criminal threats.