90% of FIs Leverage Fraud-Prevention APIs as Crime-Fighting Tool

Financial institutions (FIs) are facing an increasing threat of fraud and financial crime in the digital age. And as the volume and sophistication of fraudulent transactions continue to rise, FIs are turning to cutting-edge tools and technologies to enhance their security measures.

In “Financial Institutions Revamping Technologies to Fight Financial Crimes,” PYMNTS Intelligence draws on insights from a survey of 10 FIs in North America to explore the technological solutions FIs use to detect and combat financial crimes, as well as the technology they plan to use in the future.

Findings detailed in the study, produced in collaboration in Hawk AI, show that in 2022, consumers reported losing about $8.8 billion to fraud, with bank fraud cases increasing by 25% compared to the previous year.

These findings dovetail with separate PYMNTS Intelligence research which shows that fraud has increased for 43% of FIs compared to 2022, with the average cost of fraud increasing by 65% for FIs with assets of $5 billion or more.

To address this rising tide of fraud and sophisticated financial crime, FIs have had to elevate their systems and embrace advanced technologies, with 71% of FIs using both artificial intelligence (AI) and machine learning (ML) to boost their fraud-fighting capabilities.

But while FIs mostly develop their own fraud prevention tools in-house, the next wave of technologies has led many to consider external providers. In fact, half of the FIs surveyed use a mix of in-house and third-party solutions, while only 14% of FIs use exclusively in-house AI and ML tools for fighting fraud.

Other commonly used technologies include fraud-prevention APIs, web-based multifactor authentication, and adaptive authentication. Findings from the survey indicate that 90% of financial institutions leverage fraud prevention APIs. Furthermore, both adaptive authentication and web-based multifactor authentication are widely prevalent, with 80% of financial institutions having implemented each of these measures.

Examining the data further shows that FIs consider factors such as reputation, ease of integration, cost, and their own testing of new technologies when selecting third-party solutions. Reputation and ease of integration are crucial decision-making criteria, with 90% of FIs mentioning them as top reasons for choosing a particular third-party provider.

Looking ahead, FIs plan to revamp their efforts in fighting financial crimes over the next three years. While 80% of FIs will rely on a mix of third-party providers and their own technology, the remaining 20% will integrate third-party technologies into their existing systems.

Overall, the use of advanced technologies is becoming increasingly prevalent, with FIs leveraging both in-house and third-party solutions to enhance their security measures and protect their customers from financial crimes. This proactive approach is crucial as the threat landscape of fraud keeps evolving.

As Dean M. Leavitt, founder and CEO at Boost Payment Solutions, told PYMNTS in a recent Quick Takes session, organizations that fail to adapt to these technological advancements risk vulnerability to fraud attacks, jeopardizing both their integrity and customer trust.

“Any firm — whether it’s an FI, payment firm or other company — that chooses not to invest significantly in security … as it evolves more and more, are doing so at their own peril,” Leavitt said.