Global financial crime report highlights AI as emerging fraud challenge
ComplyAdvantage has launched its annual report into fraud, money laundering, and financial crime: The State of Financial Crime 2024.
The report identifies the criminal use of artificial intelligence (AI) as an emerging fraud challenge while revealing that most financial institutions are investing in technology to combat this growing threat. However, a majority of consumers remain uncomfortable with AI, even when it is being used to protect them.
“Today, AI is being utilized by both criminals – who are using it as new ways to defraud customers – and institutions, who are using it to stay ahead of fraudsters and defend their customers,” said Vatsa Narasimha, CEO of ComplyAdvantage. “We know from our work with financial institutions around the world that AI-based technologies can significantly enhance the fight against financial crime. We see a tremendous opportunity for banks to show consumers how these new technologies and processes like explainable AI are being used to safeguard their finances.”
AI: Fighting the emerging threat
- Two-thirds (66%) of financial industry respondents think the use of AI by fraudsters and other criminals poses a growing cybersecurity threat. Risks include deepfakes, sophisticated cyber hacks, and the use of generative AI to create malware.
- Banks and other financial institutions are increasing their defenses against these threats, with 86% of respondents saying their company is investing in new technologies.
- However, only 53% of financial industry respondents said they prioritize explaining their use of AI to their customers.
“Whether they use AI to identify fraud patterns, analyze networks, or streamline processes, banks can take the lead on what we believe will be a key trend in 2024: explainability. Namely, the ability of financial institutions to demonstrate to their customers how and why AI models have taken decisions that affect them,” continued Narasimha.
“If compliance leaders are concerned about how customers will receive this information, our survey suggests they should be optimistic. 65 percent of consumers told us they are open to banks sharing their transactional details with other banks if it helps identify fraud patterns. So clearly, consumers understand that new, more innovative approaches are required to address our financial crime challenges. We would expect this percentage to increase further once the benefits of AI for improving financial crime detection are more widely know.”
Ongoing problem of payment fraud with millennials hardest hit
One example of growing criminal sophistication highlighted in the survey is payment fraud. With digital payments continuing to experience double-digit growth year on year, criminals are using new technologies to commit fraud on a mass scale.
- 60% of industry executives surveyed say that payment fraud has remained at the same high levels over the last 12 months, with 8% reporting an increase.
- Nine out of ten consumers surveyed (89%) expressed anxiety about being a possible victim of fraud.
- 1 in 4 consumers (23%) report being the victim of fraud in the last three years, with millennials (age 27-42) the hardest hit at 31%.
When asked what kinds of fraud they were the victims of, the most common responses
were:
- Credit card fraud (59%)
- Identity theft and phishing (21%)
- Employment scams (12%)
- Investment fraud (10%)
“Millennials have embraced digital payments and mobile banking, which dominate how we access banking services today. The scale of fraud amongst this generation demonstrates how quickly criminals exploit technology and changes in consumer behavior,” said Narasimha.
“Every compliance executive we surveyed said that they are either currently participating in an authorized push payment (APP) program or will in the near future. With APP fraud continuing to rise, we expect this to become a big priority for regulators and financial institutions in 2024.”
One in five consumers admit to “friendly fraud”
At least one in five of the consumers surveyed admitted to at least one behavior that is described as “friendly fraud.” Indicators of this include:
- Disputing a payment after receiving an inadequate response from a merchant (21%).
- Disputing a payment that they later realized was legitimate (12%).
- Claiming a debit or credit card refund despite not returning the item (9%).
“The surprisingly high level of ‘friendly fraud’ uncovered in our survey shows just how widespread and complex fighting fraud can be when consumers can – even inadvertently – commit behavior that may raise a red flag with their bank,” said Iain Armstrong, regulatory affairs practice lead for ComplyAdvantage.