The artificial intelligence- AI spectrum has gone on to emerge as a new fraud challenge as per an AI-driven fraud and AML risk detection firm, as it goes on to launch The State of Financial Crime 2024’ report.
It is well to be noted that today AI is getting utilized by both criminals, who happen to be using it as a new method so as to defraud customers, and also institutions, who happen to be making use of it to stay ahead of fraudsters and also defend their customers.
The fact is that a lot can be known from financial institutions from across the world that happen to have AI-based technologies, which can go on to significantly elevate the fight against financial crime. One can witness a tremendous opportunity for banks in order to show consumers how these new technologies as well as processes such as explainable AI happen to be used so as to safeguard their finances.
Artificial Intelligence: Combating the Emerging Threat
Two-thirds, or around 66%, of the financial industry respondents believe that the use of AI by fraudsters as well as other criminals happens to be a major and growing cybersecurity threat. Risks such as deepfakes and sophisticated cyberhacks, along with the use of generative AI to create malware, are indeed the biggest concerns that have cropped up.
Banks, along with other financial institutions, happen to be increasing their defences against these threats, with 86% of respondents stating that their company has been investing in new technologies.
However, just 53% of respondents from the financial industry stated that they place a high priority on describing their use of artificial intelligence to their consumers.
Whether they make use of AI to track down fraud patterns, evaluate networks, or streamline processes, banks can very well go on to take the lead on what one believes is going to be a key trend in 2024, and that’s explainability. Namely, the capacity of financial institutions so as to demonstrate to their customers how as well as why AI models have taken decisions that go on to impact them.
It is well to be noted that if the compliance leaders happen to get concerned about how customers are going to receive this kind of information, the survey suggests they should indeed be pretty optimistic, as 65% of the consumers opined that they are indeed open to banks sharing their transactional information with other banks if it helps so as to identify fraud patterns. It is very clear that consumers recognize that taking into account the financial crime challenges indeed needs a new and more innovative push.
Following the dissemination of information regarding the benefits of artificial intelligence in enhancing the detection of financial crimes, it is reasonable to assume that this percentage will climb even more.
The current issue of fraudulent payment methods, with millennials being the most severely affected members of the population
One example of an increasing level of criminal sophistication that was highlighted in the survey is the practice of payment fraud. Criminals are utilizing new technology in order to conduct fraud on a large scale. This is an attempt to take advantage of the fact that digital payments are enjoying a steady growth of double digits year over year.
- Apparently, 60% of industry executives who were surveyed say that payment fraud happens to be at very high levels, the same high levels across the last 12 months, with 80% reporting an increase.
- It is important to note that 9 out of 10 people who were polled, which is around 89%, expressed concern about the possibility of becoming a victim of bank fraud.
- 1 in every 4 consumers, i.e., around 23%, reports being the victim of fraud in the last 3 years, with millennials aging in 27-42 bracket being the ones that are hardest hit at 31%.
Upon being questioned regarding the kind of fraudulent schemes that they have been most likely to fall prey to, the responses that were provided were as follows:
- Credit card fraud at 59%.
- Identity theft as well as phishing stand at 21%.
- Employment scams at 12%.
- Investment fraud stands at 10%.
Notably, the millennials have indeed gone on to embrace the digital payments module as well as mobile banking with an open mind, thereby demonstrating how one goes on to access banking services today. The level of fraud amongst this generation goes on to show as to how quickly criminals can go on to exploit technology, as well as changes in consumer behavior and patterns.
It is worth noting that every compliance executive that was surveyed said that they happen to be either at present being a part of an authorized push payment-APP program or most probably in the near future are going to be a part of it. With APP fraud that is continuing to be on the rise, one can indeed expect this to become a very big priority for regulators as well as financial institutions in 2024.
One consumer out of every five admits to having been a victim of friendly fraud
It is well to be noted that a minimum of 1 in every 5 of the consumers that were surveyed admitted to at least one behavior that is described as friendly fraud. Significantly, the indicators of this include:
- Disputing a payment post getting receiving an inadequate response from a merchant, which stood at 21%
- Disputing a payment, which they went on to realise later that it was legitimate at 12%.
- Going ahead and claiming a debit or credit card refund in spite of not returning the item, standing at 9%.
Interestingly, the surprisingly very high level of friendly fraud that was uncovered in the survey shows just how widespread as well as complex fighting fraud can go on to be when consumers can, may in an inadvertent way commit behavior that may indeed raise a red flag with their bank.