Fighting Fraudulent Transactions, By the Numbers

In the fall of 2021, PYMNTS, working with the Mastercard affiliate Brighertion, interviewed dozens of banking executives to determine how acquiring banks use artificial intelligence (AI) and effective merchant monitoring to combat credit, debit and prepaid card fraud.

Here’s what our research turned up. 

1) Most acquiring banks say fraudulent transactions increased between 2020 and 2021 

If you’re a bank that hasn’t spotted an uptick in fraudulent transactions, count yourself among a blessed minority.  

Ninety-three percent of acquirers surveyed said they saw a year-to-year increase in fraud. They also acknowledge the threat this poses, as 88% say reducing fraud is critical to their ability to increase or maintain merchant processing revenue. 

And fraud afflicts the protected and unprotected alike, more or less. Our research found 96% of acquirers that do not use AI systems to fight fraud have seen an increase, compared to 93% who do have those systems in place. 

2) Most banks that use AI use it for fraud detection 

A full 98% of acquirers using AI say it’s found fraud detection. Sixty percent say AI is their chief tool for this job, while another 15% say it’s an important weapon. 

These banks are using a host of tech aside from AI to deal with fraud: 27% call rules-based algorithms the most important anti-fraud tool, while a fifth say it is an important tool. And just 6% of acquirers call data mining the most important tool, although 65% say it is an important tool, just not the most important. 

3) Most banks outsource this work 

Ninety-two percent of banks that use AI systems to spot transaction fraud say outsource the systems from third-party providers, based on how well these companies’ AI systems can improve the banks’ capabilities.

While businesses have used AI for years, the technology changes quickly and can take time to put into place. Fraud protection is essential in the high-transaction-volume business of payments processing, and many acquirers have realized they can’t afford to waste time developing their own systems. 

If you’d like to know more about how banks are using AI and other tools to curb transaction fraud, download your copy of PYMNTS’ latest AI In Focus playbook.