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

Something’s got to give, as the old song goes.

As Dave Excell, founder of Featurespace, remarked to PYMNTS’ Karen Webster with a nod to fraud attacks bedeviling financial institutions: “The problem is big, and it continues to grow. So doing nothing isn’t really a solution to the problem.”

At particular risk right now are the smaller FIs, vulnerable in ways that their larger brethren simply are not.

Fraudsters will always look to find the weakest link in the chain, he said. Smaller FIs are, relatively speaking, the weakest links in the financial system, given that they have limited resources — in time, manpower and money — to invest in technology.

In fact, as he noted, the smallest players in the ecosystem may not even have complete digital onboarding processes in place yet, even with the great digital shift that has brought so much banking online in recent years.

One might think that fraud teams and risk management professionals tasked with beating back the bots, the account takeovers and the synthetic IDs would be enthused about having as many tools as possible in the proverbial arsenal.

Of course, there’s a dual-edged sword here: Just as the banks are mulling over the use of technology to fight the criminals, the criminals themselves are proving adept at using cutting-edge technology to swarm the financial firms.

“They collaborate a lot more,” Excell said of the hackers and the fraudsters, “and they don’t need to worry about privacy and compliance rules.” He cited deep fakes as one avenue of attack that’s being used to fool banks.

The bankers, of course, are cognizant of the threats. Indeed, according to “The State Of Fraud and Financial Crime In The U.S.” report, a collaboration with Featurespace, 95% of 200 executives at FIs with assets of at least $5 billion stated that innovations related to anti-money laundering (AML) and preventing financial crimes was top of mind.

Read the report: The State of Fraud and Financial Crime in the U.S.

And yet, 85% of the same executives surveyed stated that the very idea of integrating new technologies to beef up their anti-fraud efforts is making them pause. There’s a gap between wanting to do something about fraud and being confident that the technology being deployed is the right technology, with a positive return on investment.

Tackling the data sharing within an FI and between FIs that give rise to robust defenses against the band actors is no easy task. As Excell observed, in the past, many large-scale tech deployments at banks have not ended well.

Still, the banks want to innovate and harness the power of technology — they just need a bit of help in getting there.

Getting Rid of Complexity

As Excell noted, FIs must grapple with the technology systems that have grown over time and have been cobbled together from a disparate range of software and hardware providers. Introducing new technologies into the mix can wind up complicating things.

Fraud prevention, after all, is an eternal endeavor that is heavily reliant on data — and, importantly, consistent data. Cloud-based technologies, said Excell, can be instrumental in taking on the burden of collecting, synthesizing and delivering that data off the shoulders of the FIs themselves.

With the platform approach on offer from firms like Featurespace, executives “do not need to learn technology systems,” he said. “They’re able to use a fraud platform as a service that’s available to them and focus on the benefits they are able to gather from the innovations that we’re able to provide through machine learning.”

The platform model also helps FIs avoid the pitfalls of past technologies that have come to market, where fraud solutions have typically been “built” around specific payment types or channels. The result was that banks approached fraud prevention in isolation, without understanding the full customer journey.

Following the Breadcrumbs

That 360-degree approach can help an FI spot rising incidences of check fraud, for example, and triage the situation in a proactive manner, rather than winding up being reactive.

And along the way, he said, the robust data and analysis can give insight into how accounts are opened and how consumers are interacting with their FIs — all of which gives a blueprint on how to stop financial losses from taking place in the future.

Call it a case of “following the breadcrumbs” in the quest to develop the knowledge set that stops fraud before it starts.

Machine learning and artificial intelligence (AI), he added, can help FIs identify fraud in real time(doubling the amount of fraud that can be detected and prevented), while providing a better customer experience throughout the payments journey. There’s a ripple effect, too, as an FI’s resources are freed up to prosecute the fraud, which can help stagger at least some scams and schemes.

But the malevolent actors will constantly test new areas in search of the next great point of FI vulnerability.

“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 the financial institutions.

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

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