By: Karunya Sampath, Co-founder & CEO, Payoda Technologies
As the world has transitioned to online banking, bank fraud schemes and scams have risen exponentially. According to Nasdaq USD 485.6 billion were reported in losses through such activities worldwide. At the receiving end are consumers and businesses who have been duped due to impersonation, advance fees, cyber-enabled scams, and bank fraud losses due to credit card fraud, cheques, and online payments. Even as fraudsters are going hi-tech, the banking, financial services, and insurance (BFSI) industry is also banking upon innovative technology to beat them at their game.
To understand the fraud landscape in BFSI, we need to understand the types of frauds that are prevalent. The major ones are identity theft, transaction fraud, and money laundering. The combination of AI precision and blockchain immutability represents a seismic shift in BFSI security. It establishes foundations of transparency, trust, and fraud prevention, ensuring a future in which fraud is eliminated from the heart of BFSI operations. Artificial Intelligence and Blockchain technology have held the beacon for curbing all sorts of fraudulent activities. Even as they provide robust solutions to combat fraud, with time they are just making the BFSI industry stronger and more reliable.
Simply explained, blockchain technology is a global network of computer systems that replicates and distributes a virtual record of transactions. A blockchain is made up of blocks, each containing many transactions. While it was formerly limited to revolutionising client experiences, Blockchain has now evolved to become an essential component of internal BFSI processes. Major players have embraced this disruptive technology, shifting gears to capitalise on its potential for assuring data integrity and security. The decentralised powered smart contracts ensure that intermediaries are eliminated in financial services, thereby ensuring transparency and more security against fraudulent activities.
Blockchain’s immutable ledgers ensure transparency and traceability. Thus one can go back and trace the point at which fraud was attempted or committed, ensuring that such accounts are blacklisted and the culprit is caught. Creating smart contracts is one way to secure and automate transactions. Smart contracts can be between individuals or organisations. Because smart contracts legally bind all parties to a document, the finance sector is progressively using blockchain in the drafting of contracts, for transactions, and sensitive data. Blockchain can provide risk assessment and reporting capabilities to help prevent money laundering. Because each transaction is permanent and unalterable, authorities may readily track its origins. This is why blockchain use is increasing among financial institutions. Thus, the BFSI industry is extensively using blockchain to prevent fraud.
Artificial Intelligence (AI) too is being used extensively for fraud detection and prevention. With the help of AI and ML, ample fraud detection solutions are being created that exemplify real-time vigilance, provide organised reporting, improved data accuracy, and efficiency—essential in today’s rapidly evolving digital fraud situation. AI can also analyse vast amounts of data to detect unusual patterns indicative of fraud. AI’s ability to monitor transactions in real-time and flag them ensures that immediate action can be taken and the activity can be halted at that precise moment. Through ML companies can train the model to identify the characteristics of good as well as bad transactions. This will lead to uncovering of hidden patterns, providing a better ground to recognise fraudulent behaviour.
Thus integrating AI with blockchain can help to create a more robust security protocol and prevent fraud. Blockchain’s transparency and AI’s analytical capabilities together can lead to safer transactions. The BFSI sector is banking heavily upon technology to prevent fraud. In doing so, institutions also install technology that reduces risk exposure, such as firewalls, anti-virus, and anti-malware software, along with AI-powered fraud detection systems. Thus Cash fraud, Billing fraud, Check tampering fraud, Skimming, Financial statements fraud, and Internal fraud/cheque kiting can be curbed.
Even as Blockchain and AI are already making waves in the industry to fight against fraudulent activities, we can only expect technology to improve in the near future. Experts have high hopes for Voice Biometrics and Enhanced knowledge-based authentication (KBA). While Voice Biometrics enables passive authentication based on a caller’s voiceprint, which helps prevent fraud and automates consumer access, KBA validates cardholder IDs using external sources, posing difficult security concerns, and ensuring safe usage of cards. However, the consumer and BFSI professionals both will have to stay ahead of the changing times and in tune with the latest technology. This will safeguard them both against fraud.