For financial institutions, artificial intelligence plays a dual role in the ongoing battle against fraudulent activities, acting as both a foe and a friend.
AI presents a challenge as cybercriminals exploit advanced technologies to devise new fraudulent schemes targeting banks and their customers. The emergence of synthetic IDs has become a popular tactic, posing significant obstacles in terms of detection and prevention. Additionally, the use of multimedia elements like images and audio in fraudulent schemes introduces another layer of complexity, allowing scammers to manipulate emotions and extract sensitive information or payments deceitfully.
However, banks can leverage AI to effectively combat these fraudulent activities in real-time. By utilizing AI-powered solutions, financial institutions can proactively detect and prevent fraudulent attempts, thereby reducing risks and protecting their finances and clients. Recent collaborative research conducted by PYMNTS Intelligence and Hawk AI, as detailed in the report “The State of Fraud and Financial Crime in the U.S.,” revealed a troubling trend: 43% of financial institutions experienced a surge in fraudulent activities compared to the previous year. Moreover, the financial impact of fraud on larger financial institutions with assets exceeding \(5 billion has increased by 65%, rising from \)2.3 million in 2022 to $3.8 million in 2023.
The landscape of fraudulent activities is constantly evolving, with scammers adept at creating false identities across various communication channels to deceive unsuspecting individuals. As digital interactions become more prevalent, scams targeting both individuals and businesses are on the rise. From business email compromise scams resulting in \(50 billion in global losses between 2013 and 2022 to the \)17 billion losses incurred in the U.S. alone, the financial repercussions of fraud are substantial. Particularly concerning are fraudulent transactions stemming from impersonation tactics, such as pretending to be bank tech support personnel or IRS officials, impacting a significant number of retail banking consumers, especially those under 40 years old.
To strengthen their defenses, financial institutions are increasingly turning to advanced machine learning and AI technologies. These sophisticated tools enable the detection of anomalies in user profiles and the prevention of fraudulent activities before they occur. A significant insight from the collaborative research indicates that 56% of financial institutions with assets exceeding $5 million are either planning to implement or enhance their use of machine learning and AI capabilities in their fraud prevention strategies, marking a notable increase from the previous year’s 36%. For in-depth coverage of AI advancements in the payments sector, readers are encouraged to subscribe to the AI Newsletter provided by PYMNTS.
