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Artificial Intelligence in Banking: The Battle Against Fraud

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In the evolving field of financial technology, banks find themselves in a relentless struggle against fraudsters who continually exploit advanced technologies to compromise financial institutions and their clients. Artificial intelligence (AI) emerges as a dual-edged sword, serving as both a foe and a friend in this perpetual battle.

Advanced Tactics of Fraud

Synthetic IDs as Attack Vectors

The adversaries in the realm of financial fraud have harnessed the power of AI to forge innovative pathways toward scamming banks and their customers. Synthetic IDs, in particular, have become popular attack vectors, presenting a formidable challenge for financial institutions to guard against. These sophisticated identities are intricately crafted, making detection a complex task.

Escalation of Fraud Incidents

As revealed by joint research from PYMNTS Intelligence and Hawk AI in the report titled “The State of Fraud and Financial Crime in the U.S.,” the year 2023 has witnessed a surge in fraud incidents. A staggering 43% of financial institutions reported increased fraud compared to 2022. Moreover, the average cost of fraud for institutions with assets exceeding $5 billion surged by 65%, reaching $3.8 million in 2023 from $2.3 million in the previous year.

Fighting Fire with Fire

Amid the escalating threat landscape, the age-old adage holds true: one can fight fire with fire. Banks, too, can employ AI to detect and thwart fraud, often in real time. The dynamic capabilities of AI empower financial institutions to adapt to evolving fraud tactics and bolster their defenses.

Real-Time Detection

Advanced machine learning and AI technologies play a pivotal role in fortifying defenses against fraudulent schemes. These high-tech tools excel in identifying anomalies within authorized user profiles, enabling banks to proactively block bad actors before they can execute their malicious intents. Notably, 56% of financial institutions with assets exceeding $5 million have expressed plans to initiate or increase their use of machine learning and AI to enhance existing fraud solutions, marking a significant jump from the 36% reported a year ago.

AI-Powered Scams

AI enables fraudsters to assemble identities—posing as customers, vendors, friends, and family members—through various mediums such as voice, text, and online data collection. Images and audio further augment scams, where fraudulent calls or text messages simulate distress to deceive victims into divulging sensitive information or making unauthorized payments.

Pervasiveness of Fraud

The shift towards digital B2B channels, especially for payments, has intensified the dual narrative of convenience and vulnerability. Businesses navigating digital transformation must strike a balance between innovation and risk mitigation. Alarming statistics, including the FBI’s report of $50 billion in global losses due to business email compromise scams from 2013 to 2022, underscore the pervasive nature of fraud.

Targeted Impersonation

Fraudsters often impersonate bank tech support personnel or officials from entities like the IRS. PYMNTS Intelligence reports that 12% of fraudulent transactions stem from scams involving the impersonation of bank tech support personnel. Additionally, a separate report highlights that 47% of retail banking consumers under the age of 40 experienced some form of banking fraud in the current year.


As financial institutions grapple with the escalating sophistication of fraud, the strategic utilization of AI emerges as a crucial defense mechanism. While fraudsters leverage advanced technologies to exploit vulnerabilities, banks can harness the power of AI to stay ahead in the ongoing battle against financial crime.

The adoption of machine learning and AI technologies not only enhances detection capabilities but also signifies a proactive stance in safeguarding the financial ecosystem. In this dynamic landscape, the collaboration between human vigilance and AI-driven defenses becomes paramount to ensuring the integrity of banking systems and the protection of clients’ assets.

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