Artificial Intelligence (AI) is revolutionising every industry we know of and one of the most prominent industries that is implementing AI is the global finance industry.
If you look at the stats then we are going to find that the market size of AI and especially Generative AI is only increasing in the financial services industry.
It is expected to reach almost 12 billion dollars by the end of 2033 and this speaks a lot about the interest in AI in the financial industry.
Today we are going to talk about a specific use case of Artificial Intelligence (AI) in the global finance industry that has the ability to save the industry billions and trillions of dollars it loses every year.
If you look at the stats mentioned above then you are going to find that almost 1/4th of the world’s population has been affected by financial fraud of some form or another.
This indicates a larger issue that every financial institution out there whether it is banks, insurance companies are even government organisations have been affected by online fraud.
So, let us look at all the types of financial transaction fraud so that we can understand how AI is going to help the situation.
We are going to look at some of the most common types of financial fraud that take place in the global financial industry and we will also look at the solution present by Artificial Intelligence (AI)
AI Solutions to Common Types of Frauds in Financial Transactions
Credit Card Fraud
The Problem
Credit card fraud is the most common type of fraud that costs financial institutions billions of dollars each year.
This is usually done with the help of skimming where a device is placed over the card reader so that the device can copy all the card details when the user is using the card on any ATM or any Point Of Sale (POS) terminals.
Credit card fraud is something global and can have an impact on the largest economy as well as the smallest economies.
Credit card fraud can also take place in the form of phishing attacks where scammers try to extract credit card information with the help of fraudulent emails or websites and event text messages.
This is usually done to trick the person into inputting their information into a fraudulent source.
The AI Solution
Artificial Intelligence (AI) brings a multifold solution to credit card fraud in the form of behaviour analysis where AI models study the behaviour pattern of the cardholder and flag the behaviour if they find any kind of anomaly.
Additionally, Artificial Intelligence (AI) keeps track of the transaction in real-time and this is not possible with any kind of traditional system because the AI model These Artificial Intelligence(AI) models have to analyse each and every transaction of the bank related to credit cards so as to check for anomalies.
Check Fraud
The Problem
While it is not as popular, check fraud is still a thing that causes a lot of problems to clients as well as financial institutions and has wreaked havoc in this industry for a long time.
We are looking at things like signature fraud in the form of forgery and also duplicate checks and even forging different elements of the checks.
We also have check kiting and it is usually done when there is not sufficient balance in the savings accounts.
Artificial Intelligence (AI) can actually be an amazing solution to this problem.
The AI Solution
This is where we get to see Artificial Intelligence (AI) being utilised for signature verification because you can utilise AI’s excellent pattern recognition systems in order to find out problems with the signature.
The best thing about financial AI models is that they are able to verify a single signature with thousands of different reference points in order to find out discrepancies.
In addition to that, we also get to see some utilisation of predictive AI in the detection in that the predictive AI model has already predicted the actions of the user and if the present actions of the user do not match the historical data and if the analysis comes out as fraudulent then that can also be a point of detection.
Therefore, pattern recognition is the biggest tool in this situation.
Identity Theft
The Problem
We now come to one of the most dangerous types of fraud seen in the financial industry and we are talking about identity theft.
While it is true that every kind of financial scam is some form of identity theft but they are usually temporary and one time only.
Identity theft is when the malicious actor takes control over the user’s account and it can even be the accounts of the financial institutions themselves.
This then gives the malicious actor complete control over the account which means they can move funds to and from the account.
They can use that account for other serious crimes and the list goes on and on.
Identity theft is such a big issue that it is not limited to the financial industry because it also goes into other industries such as the healthcare industry as we also get to hear and a lot of cases of medical identity theft.
This is done to acquire drugs on someone else’s tab or it can even be used for healthcare insurance fraud which again comes into the purview of finance.
The AI Solution
When it comes to flagging identity theft fraud, financial institutions can utilise multiple protocols with AI models and the first is definitely going to be behavioural analysis.
If the AI model finds out that the behaviour of the client is not really matching with historical data patterns then this is going to be the first point of flagging the transaction as fraudulent.
This can also be achieved with behavioural biometrics in the form of analysing the typing speed of the user as well as matching it up with their location and multiple other data points in order to make sure that the user is following a pattern that they had followed previously.
It would take a supercomputer to do this with traditional techniques and it would just become impractical.
We also have other solutions in the form of Multi-Factor Authentication (MFA) where the AI model can evaluate login attempts in order to find out if the login requests are legitimate. We also have AI-powered biometrics as well as ID verification.
Net-banking Fraud
The Problem
This is one of the most common types of fraud that we get to see now and sometimes this is also called cyber fraud.
When it comes to Net banking fraud, it includes everything from phishing Attacks to Man-in-the-Middle (MITM) attacks as well as SIM swapping and even keystroke logging attacks.
These usually happen when fraudsters try to intercept the communication between the bank and the user or between two banks.
Net banking fraud is affecting different verticals of the global financial industry and includes everything from the airline industry to the manufacturing industry and even the digital goods and licence industry.
The banking industry is definitely one of the biggest targets for net banking fraud.
It also happens when the fraudsters try to trick the bank and financial institutions into transactions by pretending to be someone else and this can also be considered as identity theft.
The AI Solution
The AI solution to net banking fraud can be in the form of real-time fraud detection where the AI model will continuously monitor transactions in real time.
This will help the AI model to flag transactions that do not match with historical data and that are performing unusually compared to the previous behaviour of the users.
We also have advanced malware attack detection as well as phishing attack detection where AI models can run from the cloud or even locally in the user’s device and check every email and text message in order to determine if they are legitimate.
In addition to that, you also have Multi-Factor Authentication (MFA) where specially created models assess the behaviour pattern of the clients and also do ID verification.
Insurance Fraud
The Problem
People need insurance whether it is medical insurance, car insurance, property insurance or any other form of insurance.
The insurance industry handles billions of dollars of transactions daily and this involves looking at claims, verifying the claims and providing the insurance money payout according to the terms of the insurance.
Insurance fraud takes place when fraudsters try to deceive financial institutions like insurance companies in order to receive payouts for false insurance claims.
This can be as simple as intentionally damaging the insured property or it can be something as complex as fraud in the payout wire transfer.
Artificial Intelligence (AI) has a high level of accuracy in dealing with insurance fraud.
The AI Solution
Insurance fraud detection is where Artificial Intelligence (AI) truly shines because it can utilise a lot of measures in the form of claim pattern analysis.
This is when AI models perform supervised learning from each insurance claim and payout in order to create a pattern so that they can identify patterns that do not follow the regular pattern of claims.
In addition to that, there is also the utilisation of AI that is able to perform excellent image recognition and analysis in order to find out the damage to property and ascertain whether the claim is legitimate.
In addition to that, we also have the utilisation of Natural Language Processing (NLP) which allows for the analysis of multiple pieces of evidence that have been produced by the client during an insurance claim.
Insurance claim fraud detection with the help of AI is where we actually see the image recognition capabilities of Artificial Intelligence (AI) in finding out underlying patterns that are impossible to detect with traditional techniques.
Money Laundering
The Problem
While money laundering is not really financial fraud in the classical sense of the term but it is the movement of money where it is not supposed to be.
For example, you have multiple criminal organisations and even organisations that do not pay taxes or hide the turnover of their establishment in order to not pay taxes.
They have to however integrate that money into the traditional banking system and make it clean and that is where we come to money laundering.
Money laundering is the introduction of illegally obtained funds and making them appear legal and legitimate by bringing them back into regular circulation.
This is one of the most complicated forms of financial fraud because it involves multiple entities and it is very difficult to trace the journey of funds in such a complex system with traditional techniques.
The AI Solution
Money laundering fraud detection with the help of AI is something that is not only utilised by financial institutions and organisations but also by government entities looking to find out the dealings of illegal organisations.
This is a situation where we see heavy utilisation of AI pattern recognition capabilities as well as behavioural analysis capabilities.
Specially trained AI models are able to analyse every vector of high-ticket transactions in order to trace the path of the transaction and sort through them with excellent pattern recognition in order to find out if these kinds of transactions happened in the past and have been flagged in the past.
There are multiple checks in place in order to analyse everything from the networks used in the transaction to even the analysis of KYC processes.
This is a very complicated procedure but the results definitely show that it is already working.
We hope this blog will help you understand the importance of Artificial Intelligence (AI) when it comes to fraud detection in the global financial industry.
If you are someone closely associated with the financial industry and you would like to integrate AI solutions within the various finance processes of your organisation, we are here for you.
We are Think To Share IT Solutions and we are one of the premier names when it comes to AI integration and implementation solutions for diverse needs including financial fraud detection.
We would love to custom-create AI fraud detection solutions for all your needs.
