AI Provides Context Needed to Help Banks Stop Financial Scams

In a recent conversation with Karen Webster, Featurespace Founder Dave Excell and MidFirst Bank Vice President and Director of Enterprise Fraud Candler Eve sounded the alarm in the battle against payments fraud.

As Eve noted: “We work, live and breathe in a digital world … and in that digital world, it’s the Wild West right now.”

In the brick-and-mortar realm, there are some inherent advantages to making sure that people are safe from crime and that they can go about their everyday activities with some peace of mind. There are police forces and emergency services personnel out in the field, so to speak.

Ah, but protecting people in the digital realm is a dicier proposition.

And, as Eve contended, the banks are charged with the responsibility of being the keepers and the protectors of people’s money. Strong authentication is the key to establishing that protection.

Not an easy task in an age where seemingly every avenue of interaction between consumers and their financial institutions (FIs) is under siege. The bad actors are adept at impersonating the banks themselves, sending SMS messages and placing phone calls that dupe unsuspecting consumers into sending money to fraudulent accounts.

The criminals, of course, are armed with advanced technologies in their own quest to outsmart consumers and the FIs. A few stats highlight the favored vectors of attack — joint research from PYMNTS and Featurespace, utilizing the Federal Reserve’s FraudClassifier system, found that, according to more than 60% of FIs, there’s been an increase in both credit card fraud and financial crimes in general.

Read more: Fed Fraud Classifier Offers Consistent View of Data Across Banks

The old rule-based systems in place at banks to flag and decline transactions simply don’t apply anymore.

And as Excell and Eve noted, there are a few adjectives that describe the state of fraud and financial crime as we move toward the cementing of the connected economy.

Complex, said Excell.

Evolving, noted Eve.

Those sentiments underscore the challenge that banks face in the never-ending battle to stay at least one step ahead of the schemes and the scams. At the moment, P2P scams are surging and are in the spotlight. There’s some debate over consumers’ responsibility here (whether the bank or the individual is liable once the money is authorized to be pushed to a receiver who winds up being a fraudster). But no matter the scam(s) currently in favor, the banks are developing the ways and means to keep money from leaving the ecosystem in the first place — and from ever winding up in a criminal’s clutches. At a high level, said Excell, as FIs examine, and start using artificial intelligence (AI) and machine learning, they’re able to get at least some leg up in the battle against fraud.

“There’s an understanding of the context around what consumers are doing as they are transactions — and a full picture develops rather than looking at specific payments types and channels in insolation,” he said.

Read also: Financial Scams up the Ante for FI Investment in AI-Powered Tools

And with a nod toward his own bank’s efforts, MidFirst’s Eve remarked that AI-based efforts are “coming along.”

The optimal approach to fighting fraud, said Eve, is multi-layered and cuts across all lines of business within the bank so that the executives are aware of the evolving fraud trends and can communicate those trends effectively to end customers.

Room for Improvement

And though banks have made at least some headway in the embrace of new technological arrows in the anti-fraud quiver, there are some headwinds and significant room for improvements.

Simply put, the sheer volume of fraud attacks, the continued shifting of tactics, and the perceived complexity of tech integrations are giving rise to what might be described as learned helplessness among some executives. The reason is not passivity, but a pervasive sense of overwhelming.

PYMNTS has found that the potential complexity of fighting fraud and money laundering while maintaining regulatory compliance prevents as many as 50% of anti-money laundering (AML) executives from trying new technical options to protect their organizations.

Generalized concern over the unknowns tied to integrating new technologies was expressed by an even higher percentage of AML professionals — 85%. Eve remarked that the specter of false negatives and undetected fraud might be giving executives pause.

“It’s a perception of the complexity that is out there,” noted Excell, rather than the reality, that is a speed bump against fine-tuning anti-fraud efforts.

Leveraging Partnerships and Collaboration

Leveraging the expertise of third-party providers and platforms and adaptive behavioral analytics can reduce the frictions inherent in new tech — and frictions that have been inherent in the customer journey, too.

“There are a lot of upsides in getting past the initial complexities and diving right in,” said Excell. And there are ways, too, to introduce a level of healthy friction in the process — often at the point of transaction — that assures the consumer the FI is looking out for their best interests.

In the U.K. for example, as Eve noted, the FI will prompt a consumer (if the transaction is flagged as suspicious) to re-confirm if they really need to make that transaction right now — or it can wait for another, future time. That gives the sender wiggle room to cancel the payment if they suddenly have a regret about setting up the transfer.

The device itself can become a useful tool in establishing and affirming a consumer’s identity — beyond being merely the channel enabling the transaction.

We’re headed toward an age where all sorts of devices are acting as endpoints, noted Excell — such as connected cars — so there will be more ways than ever to authenticate users. Though the balancing act between data, security and privacy is always there, said Excell, profiling voices and fingerprints and a host of other identifiers would add levels of security.

“Understanding the continued experience of the customer, and the intent of what they’re trying to do,” he told Webster, “winds up making it simpler for the customer to transact as well.”

Looking ahead, said Excell and Eve, there are efforts to create some shared knowledge and communications across banks and in the financial services industry at large to combat fraud. The advent of the Fed’s FraudClassifier system helps create a “common language” to help measure fraud and compare it across institutions – and indicate where FIs should concentrate their efforts.

“It’s a great tool in terms of being able to communicate what’s happening in the trenches,” noted Excell.

Eve contended that anti-fraud efforts could also be bolstered by better communication between FIs and telcos, where the latter has significant amounts of data that is useful in authentication, including ISPs and email addresses.

In the meantime, said Eve, MidFirst will continue building out scam detection models, its examination of account openings and even its monitoring of check fraud tied to mail theft. Featurespace will continue to invest in the cloud enablement of its platform, with an eye on more robust collaboration between institutions.

“Keeping the money in the ecosystem,” said Excell, “rather than letting it go out, enables funds to be recovered more easily … and makes the world a safer place to transact. For everybody.”