Fighting fraud in payments with AI
AI is revolutionizing fraud detection in financial institutions, enhancing security and confidence in digital payments.
The digital payments industry is facing a significant rise in fraud, with US consumer losses reaching over USD$12.5 billion in 2024, nearly quadrupling from USD$3.5 billion in 2020. Financial institutions (FIs) are increasingly turning to advanced technological solutions, particularly Generative AI (GenAI), to combat this issue.
- According to Feedzai:
- 76% of FI respondents view fraud detection and prevention as the most critical application for GenAI.
- 83% plan to increase their GenAI investments by at least 50%.
One major challenge is the fragmented nature of anti-money laundering (AML) and know-your-customer (KYC) data, which hinders comprehensive fraud detection.
- Solutions:
- Integrating these data sources is crucial for a holistic view of customer behavior.
- This integration enhances regulatory compliance and fraud prevention.
Next-generation authentication methods, such as AI-driven biometric solutions, are also proving effective.
- AI-Driven Biometric Solutions:
- Analyze user behavior and biometric data in real time.
- Replace traditional password vulnerabilities with a more robust and adaptive security framework.
AI is also making significant strides in trust scoring.
- Trust Scoring:
- Companies build customer profiles based on historical behavior.
- Assign trust scores to each customer, as seen on platforms like Zelle.
- This approach helps in better understanding transaction risks and preventing fraud.
Incorporating feedback data from customer complaints, chargebacks, and declined transactions into AI algorithms can further enhance fraud detection accuracy.
- Future Potential:
- Currently, this process is manual.
- Has the potential to make AI systems even more advanced and effective in the future.
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