UK Finance: How Far Can AI Go in Fighting Fraud?

Much has been said about the potential new technologies like artificial intelligence (AI) and machine learning have in transforming fraud detection and fraud prevention across industries.

But according to UK Finance’s Katy Worobec, managing director, economic crime, and Dianne Doodnath, principal, economic crime – remote payment channels, the jury is still out on the full impact these new technologies will have on deterring or preventing fraudulent activities in the banking and financial services sector.

In fact, regardless of the advanced technologies being used, Worobec said that as long as fraudsters are able to convince victims to give them access to their personal information, it’s back to square one.

“You can have as many locks on the door as you like but if someone gives you the keys, or even opens the door for you, all bets are off,” Worobec told PYMNTS in an interview, adding that “while new technologies are helpful, customers still need to be vigilant and protect themselves against fraud.”

Doodnath added that observations made by members of UK Finance — a trade association for the U.K. banking and financial services sector — also highlight some of the limitations of these advanced technologies. For example, despite AI’s ability to detect people with higher fraud susceptibility, it isn’t able to dissuade individuals from engaging in activities that expose them to attacks.

Then there’s AI-generated voice deepfakes or phishing emails, which Doodnath said can accurately replicate a real person’s voice or automate a personable romance interaction without the victim being able to tell what’s real from what’s fake.

The rise of the metaverse and immersive customer experiences also come with their own set of challenges, Doodnath further said, adding that distinguishing between activities conducted in a virtual space where users tend to lower their guard and what is safe in a real world environment is not always obvious.

Due to the lack of insights into newer technologies and how easy it is “to spoof or manipulate”  them, Doodnath argued, “We’ll see a lot more issues before we see benefits.”

It’s the reason why she said determining the full extent of the impact newer technologies will have on fraud prevention remains “a hard one to call,” especially because “there’s an underestimation from those that are keen on new innovations of the harm they can cause and how far criminals will go to abuse them.”

Upstream Approach, Intelligence-Led Policing

Moving forward, Worobec said monitoring the shifts in regulation and government-led policies to understand the implications they have on the fraud landscape will be a major focus this year.

One of the policies to watch is the ongoing debate in the U.K. over fraud refund rules which will mandate that financial institutions (FIs) and other payment service providers reimburse victims of authorized push payment (APP) fraud.

While the payment regulator argues that this legislation will incentivize banks to do more to protect customers from fraud, Worobec said that there is concern that “there isn’t more focus from their perspective on prevention and detection.”

Collaborating more with telecommunications companies and online platforms can help assuage those concerns, she explained, especially since those two entities play an important role in how criminals are able to gather information on their victims.

It’s an upstream approach that she said would help nip fraud in the bud if adopted, and “make a difference before the payment even hits the system.”

Beyond regulation, Worobec noted that working with law enforcement on forward-looking initiatives will be another key focus this year.

“That proactive intelligence-led policing, rather than trying to chase the money after the event, is really where we want to encourage action on the policing side,” she remarked, pointing to UK Police taking down websites that are involved in illegal activity before fraudsters can scam users, as an example.

Overall, Doodnath said there is a huge spotlight on fraud in the U.K. at the moment, and as the year evolves “we’ll see a lot of new writing on the wall of what is coming and how people will have to adapt and change” even if “material change won’t happen until 2024 onwards.”

Doodnath added the digital revolution unleashed by the pandemic is one to watch closely as criminals continue to capitalize on increasing smartphone adoption to take over accounts via customers’ mobile phones.

“Mobile malware is one that we’ve been watching for quite some time. There’s a great increase in capability in terms of what criminals can do around that space,” Doodnath noted. “It’s still very low-value in volume but it’s one that we’ll keep a watching brief on.”

Read more: Pay.UK on Striking the Balance Between Fast and Friction in Stopping UK Fraud Epidemic

For all PYMNTS EMEA coverage, subscribe to the daily EMEA Newsletter.