Fraud Detection

The Role of Artificial Intelligence in the Future Of Financial Fraud Detection

Until a few years ago Artificial Intelligence seemed like a thing from sci-fi movies. The whole concept seemed like fiction or a far fetched dream fed by wishful thinking. Then came personal assistants like Siri, Google Assistant, Bixby, Alexa and Cortana, which made the people realise that they could have something like a Jarvis in their homes as well. However, these are just known as weak AIs. Strong AIs are theoretically able to work with human cognitive abilities. Such advancing work in the field of AI is said to achieve tremendous goals in a number of fields including revolutionising the future of fraud detection.

Identity theft and fraud in the commercial sector has been a huge problem for nearly every merchant. Particularly since the increase in online buying of consumers, the number and types of online fraud have increased tenfolds. It is becoming an inevitable task for every business to implement productive anti-fraud solutions in their practices.

With the increase in online trade, cybercriminals have also found more intricate ways to defraud both businesses and end consumers. As the effect of access to information across the web snowballs, online scammers find new and more advanced ways to hoodwink retailers, online or otherwise.

Fraud in the Financial Sector

The financial sector, however, has been the most unfortunate victim of identity theft and online frauds and scams. MacAfee reported a loss of over 600 billion dollars to the global economy due to financial and other forms of cybercrimes. From Phishing scams to good old fashioned credit card to more modern fraud schemes including social engineering, card skimming, the Banking, Financial Services and the Insurance (BFSI) sector has seen the worst cases of frauds and has consequently suffered the most tremendous losses as well.

Read: How Augmented Intelligence is next stop in ID Verification Services?

The finance sector is constantly looking for ways to upgrade their systems an implement fraud protection measures, while cybercriminals are as a result looking and coming up with better and more advanced ways to hack into their databases or to compromise customer data to gain access to their finances. Such schemes are now being fought with advanced technology including machine learning and artificial intelligence.

The Market for Fraud Detection

The market for fraud detection and prevention services has gained a lot of popularity over the years, allowing the banking and the financial sector to fight fraudulent activities in an effective way. Up until now, the banking and finance sector was only able to put up walls against scammers or implement firefighting measures in case any scams surfaced.

In 2016 the entire market for such services was valued at 13.64 billion dollars. Better yet it is expected to cross 40 billion dollars by the year 2023. Primarily fraud prevention systems are software solutions that will provide conclusive and actionable solutions to identify frauds and block or at least limit any future occurrences.

Artificial Intelligence and Fraud Detection

Recently, the use of artificial intelligence in the fight against fraud has helped achieve an unprecedented level of success in detecting fraudulent activity. The idea is basically to fight fire with fire; if cybercriminals can use advanced tech to defraud the system, the same knowledge should be used to develop systems that can keep crooks out.

The idea of implementing AI-based models is to basically detect and predict identity theft and other scams commonly used by criminals to compromise financial institutions. The concept of big data comes useful herein. Since banks and financial institutes have on hand large amounts of customer data as well as transactional data, it can be used productively to predict patterns in data and look for any irregularities. This can make financial fraud detection a much easier feat for the BFSI industry.

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The Role of Artificial Intelligence in the Future Of Financial Fraud Detection

Use of AI in Identity Verification Services

More than that, AI can now be used to detect fraudulent pursuits by enabling businesses to implement identity verification measures to authenticate the IDs of customers. Shufti Pro is a such an AI-based identity verification software that provides an array of Know Your Customer (KYC) services through an AI-based SaaS. It has made significant headway into developing fraud prevention techniques that enable the banking sector to put up sizable defences against online fraud and cybercrime.

Shufti Pro is currently providing the best identity theft protection services in the market. It provides fraud prevention services through an AI-based authentication system that verifies a user’s ID in under a minute. It is supported globally and has universal language support in its system. Not only that, its restful API enables banks, financial institutes and online retailers to integrate their web-based applications and modules without any downtime.

Fraud detection and Artificial Intelligence together have the potential to transform the future of financial fraud detection and has already made significant headway into it.

fraud prevention detail

5 Industries Where Anti Fraud Solutions are Gaining Prominence

Every profit generating business has some level of risk of falling victim to fraudulent activities. The constant threat of fraud in the market encourages businesses to seek out fraud detection and prevention services. The sector that is immensely vulnerable to and affected by frauds and scams is the Banking, Financial Services and Insurance (BFSI). Fraud, in general, is responsible for a loss of one trillion US dollars to both online retailers and financial service firms. However, the finance sector is not the only industry plagued with scammers and fraudsters. Such circumstances have led companies to seek fraud analytics and anti fraud services.

Anti Fraud Solutions on the Rise

Fraud analysis, however, is not enough; for businesses to take an on hands approach to battle fraud they need proper anti-fraud solutions. Businesses are now in need of user authentication services more than ever. Such services can take the form of identity verification services, single or multi-factor authentications and face verification services. Industries more prone to fraud have been implementing such solutions for a while now. However, some industries where fraud prevention techniques are gaining prominence include;

Cryptocurrency Sector

Conventional banking has always been ailed by fraud and scams. But since the crypto industry is a relatively new find, and more or less employs the same methods as traditional financing, it has also been affected heavily by fraudulent activities. Due to its primary presence being on the web, crypto is more prone to cybercrime, wherein lies its need to employ cybersecurity measures. Authentication services are the best solution to counter such threats. Their need for such solutions has led the crypto industry to KYC verification service providers. Due to the nature of their business, they also look for AML compliance measures which allow them to avoid financial and white-collar criminals.

E-Commerce Industry

Fraud in the e-commerce sector is not new. However, online retailers have had to bear the brunt of fraudulent activities from both the customer and the banks involved in their transactions. Therefore, proper verification of their customers has had immense advantages for them. Fraud prevention measures allow them to verify the customers’ addresses, thereby ensuring that they are selling to the right person and make sure that they do not have to face any chargebacks.

Travel and Hospitality Sector

One victim of identity and credit card fraud is the travel and hospitality sector. Scammers are widely known to steal identities to use for travelling and availing hospitality services. With fraud protection services now being provided by some companies, Hotels and airlines can make sure that all bookings and reservations made with them are from authentic customers rather than fraudsters or scammers looking to avail travelling and lodging services from a stolen ID or credit card.

Online Gaming Industry

Online Gaming has been emerging as a major player in the market gradually over the years. With the growth of advancement in the tech industry, gaming has also evolved into a significant revenue generating industry. The industry is no less fraught by scams and has been in need of fraud protection. Moreover, the gaming industry is also in need of age regulation, thereby requiring age verification of its users. Therefore, implementing ID verification and face verification services from a reliable identity verification service provider, they can ensure safe business practices.

Real Estate

The real estate industry is also known to be scammed by buyers, instead of the situation only running the other way round. Scammers usually target real estate businesses by providing fake financial details and a shady story into why they wish to buy an estate. Such scams can be avoided altogether by the real industry by implementing Know Your Customer (KYC) verification solutions. They ensure the business that their buyer is authentic and is providing legitimate details into his/her financials.

When it comes to identity verification services, Shufti Pro is a veteran in the market providing top of the line anti-fraud solutions to businesses, enabling them to ensure the ingenuity of their customers. Shufti Pro provides both KYC verification services as well as AML compliance to businesses through its state of the art AI-based authentication protocols.  It can be easily integrated into a business’s existing interface and is supported by all major web browsers in addition to having SDK integration for Android and iOS.

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Bitcoin Address

Impact of Bitcoin Addresses’ Sanctions on IDV Providers

The technology enhancement is being done at an exponential rate around the world. As the tech keeps getting better, and cybersecurity protocols keep advancing, hackers and scammers up their game in order to meet the technology upgrades head-on. If this keeps happening identity verification solution needs to be engaged within payment systems for fiat as well as digital currency exchanges. In the case in question, had a financial fraud detection software been in place, then the said Bitcoin Address scam would not have occurred; it would have been detected before any harm was inflicted on the 200+ victims and their families in the SamSam Ransomware Scheme of 2015. These numbers were quoted by the Bitcoin Magazine in their article published on November 28, 2018.

Why did the U.S. include Bitcoin Address in OFAC Sanctions?

The recent developments in the SamSam Ransomware Scheme exhibit the gravity of the situation as far as extorting money in the form of cryptocurrency is concerned. According to the OFAC agency of the U.S. Department of Treasury, “Over 7,000 transactions in bitcoin, worth millions of U.S. dollars, have processed through these two addresses – some of which involved SamSam ransomware derived bitcoin.” Recently, the U.S. placed sanctions over the Bitcoin addresses used by two Iranian men, for moving illegal ransom money in the form of BTC using Bitcoin Address(es) to Irani Riyals.

This is the first time OFAC sanctions have been placed on digital currencies (i.e. the Bitcoin Address). This means these addresses cannot be engaged in any business dealings across the globe, provided those businesses have taken adequate digital identity verification measures. Financial fraud detection softwares have this feature of KYC and AML incorporated within. Using these, every person, who carries out any kind of transaction with a business entity, ranging from a simple digital transaction through Bitcoin Address to getting onboard with a certain company, can be screened against global government watchlists, sanctions lists, and databases. In addition to this, had there been a process to validate the identity before exchanging money every time, there is a high chance that SamSam Ransomware Scheme would have failed.

Value of Compliance in Fraud Detection

Prevent illegal use of digital currencies by foreign governments

In the case under discussion, the money was transferred across borders using Bitcoin Address(es), especially the money gained through illegal means or via illicit activities, in order to support the interests of the foreign government. In case any of your potential clients or users are associated with terrorist or criminal activities, your company needs to detect and immediately rectify that issue. Identity verification solutions can help you achieve that in record time.

Protect the interests and reputation of your organisation

The type of activities your organization is involved in or associated with determines your company’s reputation. When your client base is free of fraudulent consumers, the danger or risk to a company’s assets is minimized. Companies can then focus on growing their business instead of worrying about potential scammers. An effective KYC software can be used to verify an individual’s identity, including details like one’s Bitcoin Address. This includes using a facial recognition system and a hybrid approach of artificial and human intelligence to verify ID documents in real-time.

Secure high-risk transactions

By placing certain conditions on the number and amount of transactions, the high-risk ones can be sorted and those users can be screened against criminal and terrorist lists, sanctions and watchlists. These conditions may include thresholds for the transaction size; time of the day it is being conducted at, the sending and receiving locations, etc. If the transaction goes beyond the set thresholds for conditions, then the sender’s identity must be verified, using automated online identity verification solutions.

Streamline the onboarding process

In addition to enhanced cyber security and reduced cybercrime, fraud protection softwares can help streamline your user’s onboarding process, making the journey frictionless for your customers. With the least resistance in the sign-up process, the customer drop-off rates reduce substantially. Fraud prevention and identity verification softwares can ensure that legitimate customers are performing safe and authentic transactions using their Bitcoin Address or Fiat Currency Bank Accounts.

AML Screening for PEPs, Sanctions, and Blacklists

The best way to make sure that your customers or users are not attached to any illegitimate activity or organization is to scan their details against sanctions lists. In SamSam Ransomeware Case, since the Bitcoin Address(es) of the culprits are added to the OFAC list, no transactions can be made using those addresses now. What more can be done is to associate the names, DoBs and other sensitive information of the convicts with those Bitcoin Address(es). In case any such information is screened against the OFAC consolidated lists, the match must be immediate. Not only this but through effective identity verification services, screening of users for PEPs in terrorist funding lists and other watch lists is necessary so any dubious detail can be caught and investigated further.

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