How AI Technologies Shield Banks from Tech-Driven Frauds?

AI in Banking: Navigating Fraud's Double-Edged Sword

Banks are facing a dual challenge in the fight against fraud, with artificial intelligence (AI) as it poses both opportunity and obstacle. On one hand, malicious actors are leveraging advanced technologies, such as synthetic IDs, to exploit vulnerabilities and defraud financial institutions and their customers. The use of AI enables scammers to construct identities convincingly, using voice, text, and online data, making it increasingly difficult to protect against attacks.

As of the end of 2023, joint research by PYMNTS Intelligence and Hawk AI indicates that 43% of financial institutions (FIs) in the U.S. have experienced a rise in fraudulent activities compared to 2022. Moreover, the average cost of fraud for FIs with assets exceeding $5 billion has surged by 65%, reaching $3.8 million in 2023.

Fraudulent activities encompass various tactics, including business email compromise scams, with global losses reaching $50 billion from 2013 to 2022, as reported by the FBI. In the U.S. alone, losses amounted to $17 billion during the same period. Scams involving impersonation of bank tech support personnel and IRS officials are prevalent, affecting 47% of retail banking consumers under the age of 40.

However, on the defensive front, the report highlights the positive role of AI in enhancing fraud prevention measures. Advanced machine learning and AI technologies can detect anomalies in user profiles, preemptively blocking fraudulent attempts.

The research indicates a significant uptick in the adoption of AI among FIs, with 56% of those with assets exceeding $5 million planning to increase their use of ML and AI for bolstering fraud solutions—a notable increase from the 36% reported a year ago. In the ongoing battle against fraudulent activities, banks are leveraging AI to fight fire with fire, using innovative technologies to stay one step ahead of increasingly sophisticated scams.