By Pedro Barata, Chief Product Officer, Feedzai
Fraud has plagued the financial services sector for years. In today’s rapidly evolving digital landscape, financial institutions are under increasing pressure to safeguard their customers from criminals – but the emergence and accessibility of new technology has both helped, and hindered, this mission.
Fraudsters are becoming more aggressive and innovative, utilising emerging technologies and adapting their strategies to target the weakest link in the financial chain – consumers themselves. Technology, such as generative AI has created a new set of challenges for banks and financial institutions, enabling fraudsters to steal or create new identities or fake existing ones, aimed at both fooling consumers and also financial institutions.
Our research shows that criminals are currently a few steps ahead of consumers when it comes to understanding and recognising AI. Despite over half (56%) of consumers having been a victim of a financial scam, many still lack the knowledge to detect and distinguish between the various types of financial crime. 52% of consumers are unfamiliar with deepfakes and 63% have never heard of ChatGPT – tools increasingly used by criminals to scam innocent people. This shows how crucial it is for banks to act fast to educate their customers first and foremost. The old adage rings true – prevention is always better than cure.
Leveraging AI technology
Ironically, AI is simultaneously the problem and the solution. With the recent significant jumps in AI, financial organisations can now leverage advanced machine learning models to detect and prevent fraudulent activities in real-time. By analysing large behavioural data sets, such as transaction trends, or what time or where customers typically access their online banking, AI can identify patterns of behaviour. This allows banks to build a better picture of their customers and flags when something is out of the ordinary.
The ability for AI to process huge amounts of data in milliseconds allows for banks to identify unusual or potentially fraudulent activity at speed and with increased accuracy. AI holds huge potential to keep customers safe whilst also solidifying customer loyalty – with recent research revealing over half (53%) of consumers feel safer knowing their bank uses AI to protect them.
Empowering banks to better detect fraud and financial crime is keeping institutions, and their customers, both safe and compliant. However, the need for accuracy when using AI is vital. False positives, a legitimate transaction that is flagged as suspicious, is one the biggest frustrations for customers and immediately can cut any customer loyalty. Research revealed that 46% of customers would consider leaving their bank if it stopped a legitimate transaction, even if the issue was resolved quickly.
Banks need to be careful not to block legitimate transactions, and implement effective safeguards to prevent false positives and avoid customer inconvenience. This highlights the critical need for banks to prioritise transparency, effective safeguards, and tailored communication strategies to ensure customer loyalty and satisfaction.
The regulatory hurdle
As we work together to detect the rising levels of fraud, regulators must ensure they work with banks, customers, and other stakeholders to reach a solution. However, some divergence in regulatory landscapes globally still remains.
In the UK, regulators have mandated banks reimburse customers for online APP fraud, creating a sense of security and trust. Meanwhile, no such regulation exists in the US, leaving customers more vulnerable to the financial repercussions as they are less inclined to report scams. This makes it much harder to accurately measure the full extent of the problem and, more importantly, build defenses to better protect victims.
Despite varying regulation across the globe, maintaining customer trust and satisfaction is crucial across all jurisdictions. While it may not still be a regulatory obligation in some regions, it should always be seen as a competitive differentiator. Fostering long-term relationships and loyalty is vital in the competitive financial services landscape and how a bank tackles financial crime is an important factor for customers. AI can revolutionise the financial services landscape for the better and those that adopt AI, prioritise strong relationships with their customers, and deliver a seamless customer experience will excel.
About the Author
Pedro Barata is Chief Product Officer at Feedzai, where he leads product development and management to bring the most advanced financial crime-fighting technology to market. Prior to joining Feedzai, Pedro worked for Critical Software, where he helped design and develop systems for CMMi appraisals, globally supporting project management initiatives.
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