Featurespace Looks to Tackle $2T Money Laundering Wave

Anticipating a wave of fraud tied to a global recession in 2023, financial crime prevention firm Featurespace says it is building an artificial intelligence (AI) system to help banks and payments service providers (PSPs) detect financial crime.

The British company says it has received funding from the U.K. and U.S. governments to complete the project, according to a Tuesday (Nov. 22) news release issued to PYMNTS.

It’s part of a joint effort by Innovate UK — the UK’s innovation agency — and the National Science Foundation in the U.S. to prevent money laundering, application fraud and APP fraud.

“A successful outcome of this project is to make money laundering across borders and between banks much more difficult,” said Dr. David Sutton, Featurespace’s director of innovation. “If you make it harder to launder money, you make criminal activities less profitable.”

Featurespace argues there’s a timely need for this tech, as financial crime is likely to rise due to a global recession and cost of living crisis next year.

The company points to figures from the United Nations, which estimates the annual cost of money laundering to be up to $2 trillion.

And PYMNTS’ own research — conducted with the help of Featurespace — found that 62% of the financial institutions (FIs) we surveyed saw an increase in financial crime this year, with smaller FIs — those with $5 billion to $25 billion in assets — in particular marking an increase in the dollar value of fraudulent transactions.

We also found that FIs that use AI-based platforms to prevent fraud had the smallest shares of transactions leading to fraud losses among the respondents to the survey.

Featurespace has until January 24 to build its AI prototype. If successful, it will be showcased at next year’s Summit for Democracy in the U.S.

Speaking to PYMNTS’ Karen Webster in October, Featurespace founder Dave Excell said tools like AI and machine learning can help FIs ferret out fraud in real time, thus doubling the amount of fraud that can be spotted and deterred.

However, Excell noted that fraudsters will continually seek out new areas to test to find chinks in a financial institution’s armor.

“If you take your eyes off one spot,” he said, “the fraudsters will start to focus somewhere else,” because they can operate at scale across all FIs.

“You need to solve the problem holistically,” Excell told Webster.