Financial institutions (FIs) face an increasingly sophisticated and complex landscape of fraud threats with fraudsters using advanced technologies such as AI to bypass traditional security measures. FIs must rise to the challenge of ensuring robust fraud protection while simultaneously delivering a seamless user experience.
This imperative presents both opportunities and challenges. Consumers demand faster, more seamless experiences, there is little room for error; any unnecessary friction in the customer journey can drive potential customers to a competitor.
The growing threat of AI-driven fraud
The convergence of advanced AI and sophisticated social engineering tactics has empowered fraudsters, enabling them to out-maneuver traditional fraud detection systems. Criminals now acquire stolen credentials online, and with readily available AI tools, they can easily target digital journeys. These AI tools allow them to fabricate highly realistic digital identity documents for both synthetic and stolen identities, potentially evading even the most robust digital identity verification solutions.
These criminal AI tools utilize authentic-looking templates, allowing fraudsters to input any desired credentials and photographs. The result is a high-resolution image that convincingly imitates all the security features and overlays found on a genuine document. Furthermore, these tools can even simulate the capture of these pre-prepared documents by a mobile device camera; this makes it even more challenging for fraud fighters to detect.
The changing landscape of consumer expectations
Consumer expectations for financial services have evolved significantly over the past decade. Traditionally, opening a bank account was a time-consuming and often cumbersome process, requiring the submission of physical documents and manual verification.
Today, consumers demand real-time decisions and frictionless experiences. Applying for a bank account has become as effortless as a few taps on a smartphone. Identity verification, account approval, and even card activation can now occur instantaneously. Furthermore, consumers expect to be able to make card transactions and utilize digital payment services immediately after account creation.
These rapid advancements in customer experience expectations have dramatically reduced the timeframe for fraud teams to conduct essential manual checks before products are exposed to the risk of fraudulent activity.
To counter these sophisticated fraud tactics, fraud teams are increasingly adopting tools like those utilized within their payments channels to identify anomalous behaviour.
By leveraging data points such as Device, Behavioural Biometrics, Electronic Identification and Verification, and Email/Mobile Intelligence, fraud detection capabilities can be significantly enhanced. Aligning data across various fraud channels not only facilitates informed decisions at the application stage but also empowers the continued utilisation of this data during the initial months when new accounts are at the highest risk.
Real-time decisioning: A key to fraud prevention
Proactive fraud prevention at the application stage offers significantly greater cost-effectiveness compared to attempting to detect and close accounts after the initial approval.
To achieve this effectively, it is crucial to leverage as many data points as possible. I often liken real-time decisioning to a jigsaw puzzle: with limited pieces, it’s challenging to perceive the complete picture. However, as more pieces are added, the clearer the overall image becomes.
This underscores the critical importance of real-time decisioning, enabled by a flexible decisioning platform. By orchestrating both internal and external data, FIs can make informed, real-time decisions that enhance fraud prevention and minimize manual interventions.
Leveraging AI for automation and efficiency
Fraud teams face numerous challenges, including manual, time-consuming tasks that can drain resources and reduce overall efficiency. AI can automate these tasks, freeing up fraud teams to focus on more strategic work that can have a greater impact on reducing fraud.
An additional benefit of using AI for fraud detection is its ability to get smarter with each event it processes. So, even when fraudsters evolve their methods, an organization’s AI models can use real-time data to identify new patterns, learn, and adapt decisioning to maximize the right fraud alerts and minimize false positives.
Harnessing the power of AI and machine learning to make useful and effective decisions for real-time fraud decisioning must also be done in alignment with internal governance requirements.
To this end, it’s important that AI and machine-enabled models can utilize all the rich data to provide a reliable score, while including an output that can be easily interpreted by a human, and effective prompts that can help the fraud operation reach a decision quickly. Sometimes, the fraud indicators are still not enough to reach a “decline” decision, and in these circumstances, this useful data is often discarded and never looked at again.
A customer-centric approach to risk decisioning
In the face of constantly evolving fraud tactics, businesses can no longer afford a reactive approach. Proactive utilization of technology is paramount to staying ahead of fraudsters.
To effectively combat fraud, FIs must adopt a customer-centric and holistic approach to risk decisioning. Fraudulent activity does not cease at the application stage – ongoing monitoring and analysis of customer behaviour are crucial for detecting emerging fraud threats throughout the entire customer lifecycle, from initial application to high-risk event monitoring.
Newly opened accounts typically exhibit a higher risk of fraudulent activity. Therefore, re-utilizing application data or re-screening high-risk events to identify anomalous behaviour is essential. For instance, how frequently would a legitimate customer alter their address, phone number, or device immediately after account opening?
By leveraging technological advancements, AI, and data-driven insights, FIs can implement more effective fraud strategies, minimizing the impact on legitimate customers while enhancing operational efficiency.
Jason Abbott is Director – Fraud Solutions with Provenir.
