Using AI to fight fraud and protect the bottom line
Businesses face a challenging economic climate with increasing living costs, rising inflation rates, and a fragile macroeconomic environment. To navigate these difficult times, business leaders must focus on improving margins, generating real revenue, and enhancing financial performance.
One area that can drive better revenue outcomes and enhance the customer experience is fraud prevention. It is within the control of business leaders to prioritize this aspect of their operations to minimize fraud risks, particularly during slower economic periods when fraudsters are more likely to strike.
According to our research, merchants have reported a significant increase in fraud incidents over the past year, costing businesses over $48 billion globally in 2022. Besides the direct financial losses, fraud can also harm a business's reputation and lead to legal ramifications, impacting both short- and long-term financial performance. Therefore, investing in fraud prevention is crucial for companies to protect themselves and their customers.
As fraud evolves, the threats increase
Compounding the challenge is the increasingly sophisticated and evolving nature of fraud. In recent years, the barrier to entry for fraudsters has decreased, making it easier for them to target businesses with a range of malicious attacks. This trend will likely accelerate in the coming years.
One type of fraud that has seen dramatic growth is synthetic fraud, which is now one of the fastest-growing forms of financial crime. Unlike traditional identity theft, where the victim's financial identity is taken over to deplete existing accounts of funds or establish new accounts, synthetic identities are created by combining real and fake information.
Social engineering is another threat that many businesses have already encountered. With technological developments, the bar has been lowered dramatically for criminals, allowing them to carry out sophisticated social engineering attacks with little to no technical skills or capabilities.
Other attacks, such as credential stuffing, account takeovers, fake accounts, false advertising, order cancellations and fake buyer/seller closed-loops, are also currently prominent, impacting all industry verticals from ecommerce and airline ticketing to money transfer and banking services.
The lesson here is that no business can choose to ignore the changing face of fraud. The threats are too acute, and their impact on the bottom line is too significant.
Fighting fraud with artificial intelligence
In managing such dynamic threats, businesses can no longer rely on a rigid, one-size-fits-all approach to fraud prevention. Nor can they rely on a solution that doesn't utilize the latest technology to identify and stop fraud.
For these reasons, the most sophisticated and inventive merchants continuously focus on their fraud prevention strategies. Central to their plans is unlocking data that gives them unique and real-time insights into customer behavior, purchase history, or browsing patterns to provide warning signs and prevent fraud.
These businesses also adopt solutions utilizing the latest AI and machine learning technology. This allows them to take the data they're collecting and build robust fraud prevention strategies tailored to their risk appetite and customer experience. And, as important, they're providing advanced capabilities and flexibility, allowing merchants to identify new threats and tailor their strategies quickly.
Here's how these businesses are benefiting:
- Detect patterns and anomalies that humans might miss. Traditional fraud detection methods, such as manual audits and rule-based systems, may not be sufficient to detect new forms of fraud. AI is trained on billions of global transactions and benefits from a global network effect that allows it to analyze vast amounts of data to detect patterns, anomalies and emerging fraud. A fraud solution with AI and ML capabilities is constantly adapting and training itself to draw inferences from patterns in the data and detect fraud early.
- Automate and scale fraud prevention. Manual fraud detection and prevention can be time-consuming and expensive. AI can automate many of these processes, reducing the time and resources required to detect and prevent fraud. ML is also infinitely scalable, paving a frictionless path to more transactions without compromising customer experience.
- Improve accuracy and reduce false positives. Traditional fraud detection methods can generate many false positives, which can be time-consuming to investigate and ultimately result in lost revenue. AI can improve accuracy and reduce false positives by analyzing data more accurately and identifying potential fraud more precisely.
- Get real-time alerts. AI can provide real-time alerts when potential fraud is detected. This can enable companies to respond quickly and prevent fraud from causing significant financial losses. ML can also identify fraudulent trends in real-time compared to rules-based systems. Real-time alerts help companies identify potential fraudsters and take action to prevent them from causing further harm. With AI and ML, businesses can respond to an attack as it happens, not after the fact.
- Unlock valuable insights. As AI constantly runs (and learns) on a growing set of data points, it can provide unique insights into fraud trends and patterns. This can help companies identify potential vulnerabilities in their systems/processes and take steps to address them. Businesses can also use these valuable insights to develop more effective fraud prevention strategies and improve overall business operations.
Now is a critical time for businesses to identify areas in their fraud-fighting solutions that are weak and susceptible to attacks from ever-evolving fraudsters. By identifying these areas and building a more robust, bespoke anti-fraud solution that relies on technology like AI and machine learning, businesses can not only ensure that they're capturing the revenue on the table, but they can also ensure they're doing so without exposing themselves to undue risk. In short, investing in advanced fraud prevention technologies is not just a smart business decision but an essential one in today's increasingly complex business environment.