Artificial Intelligence and Fraud Prevention

2 min read

Today, AI is successfully used to handle financial fraud, and machine learning (ML) is able to detect and prevent cybercrimes before they can be executed. AI has proven to be effective in preventing credit card fraud, providing a reliable solution for the increasing instances of such fraud due to the growing prevalence of e-commerce and online transactions. Fraud detection systems analyze client behavior, location, and buying habits and take action when something seems out of place or contradicts the customer’s established spending pattern.

Artificial Intelligence and Fraud Prevention

The benefits of AI in fintech solutions are multifold and difficult to dismiss. Major financial institutions have already deployed artificial intelligence for detecting infamous financial crimes like money laundering. Machines can recognize suspicious activity and take immediate action, helping security teams investigate the crimes.

AI Approach

AI has different approaches when it comes to helping banks detect payment fraud, loan fraud, and customer onboarding fraud. Anomaly detection is one prominent approach that helps banks identify fraudulent transactions. It is used for recognizing inconsistencies or inaccuracies in payment and application information. Fraud detection and prevention solutions that are based on anomaly detection require machine learning models that are trained on continuous streams of incoming data. Such models are trained to process the contents of banking transactions, loan applications, or new account information and notify users of any deviation within normal patterns, so that they can be reviewed. Users can either accept or reject alerts through the ML model’s UI, and these responses further train the model and help it to understand whether the deviation found was fraud or an acceptable deviation.

Banks are able to detect fraud by using predictive analytics and can score transactions by risk level based on wider customer data. Predictive analytics solutions are being used to detect fraud across banking channels by analyzing data using a pre-trained algorithm to rate a transaction based on its ‘fraud riskiness.’ Prescriptive analytics then uses these predictions to provide recommended actions in case of fraud.

Both prescriptive and predictive analytics solutions rely on the same data for fraud management. Data scientists need to label several hundred transactions as either legitimate or fraudulent and then process them using the ML model. The software is able to detect the geographical location of the person and will use its newly-gained insights to analyze transactions and flag them if the purchased product data or its location data are suspicious.

ML Based Solutions

An ML-based fraud detection solution model can operate within multiple transaction and application types. ML platforms can improve fraud detection in banking by enabling data analytics software to identify potential fraud cases while ignoring acceptable deviations. AI-driven software allows anomaly detection processes to recognize risk factors within daily banking processes.

Banks make use of predictive analytics-based fraud detection solutions to detect fraud in e-commerce payments, mobile banking apps, and several other digital transactions. The software is able to compare processed data with an established baseline and identify extra entities as potential fraud methods. With fraud spreading in the banking sector and attackers constantly developing new ways to perpetrate it, such solutions are vital.

Banks already have a majority of their customer data labeled based on their stored records from past years. Security experts work with ML models to label fraudulent transactions and teach them to the software, which gradually gets better at recognizing fraud as it is exposed to more labeled transactions. Soon, AI may be able to prevent all fraud and lead to a more secure and fulfilling everyday banking experience.

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