bankingciooutlook

The Importance of AI Fraud Detection in the Banking Sector

Banking CIO Outlook | Friday, September 03, 2021

Machine learning is being used to prevent transaction fraud before it happens. This not only protects customers from fraud but also minimizes or eliminates friction for customers whose transactions have been detected incorrectly.

Fremont, CA: Banks and financial organizations are naturally exposed to fraud and scams, so detecting illegal activity is not an option. As the use of digital banking apps and online shopping increases, so must measure to detect and prevent fraud. The fact that fraud can take numerous forms is one of the issues that financial institutions face. Many banks receive a large number of false positives per day, which usually are reviewed manually. However, by doing so, banks risk inconveniencing customers who are attempting to perform legitimate transactions.

Machine learning is being used to prevent transaction fraud before it happens. This not only protects customers from fraud but also minimizes or eliminates friction for customers whose transactions have been detected incorrectly. Simple applications demand only a few pieces of personal information, such as payday advance loans, credit cards, and set a direct deposit account. This makes it simple to perpetrate application fraud. If a thief obtains sensitive information such as a social security number, they can complete an application and cause significant harm to the victim.

Mortgage fraud is being perpetrated not only by professional cybercriminals but also by industry insiders such as bank officers, brokers, appraisers, and other associated professionals. These crimes are usually carried out for financial gain, in which a person takes advantage of the mortgage financing process to steal money from homeowners or lenders. By detecting fraudulent activities early in the process, AI can assist in combating and beating application fraud. Algorithms can look for links between credit card and loan applications and monitor newly opened accounts to prevent financial harm before it happens.

While money laundering isn't always easy to spot, AI's capacity to track spending and deposit patterns over time can alert employees to suspicious activity and prevent payments from being finalized. In addition, algorithms can use various data sources to discover deviations from usual patterns, including transaction origins, end destination, and more. The objective is that AI can assist in ensuring that payments are made voluntarily and reduce the number of false positives that traditional fraud detection approaches can produce.

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