In the rapidly evolving financial services space, artificial intelligence is transforming the way banks and fintechs operate.
Over the past few years, the technology has become even more advanced, increasing innovation across various financial sectors—whether that’s detecting fraud, personalizing the banking experience, or assessing risk.
Leveraging AI to Detect Fraud
AI can detect fraudulent activities by analyzing transaction patterns. The technologies can identify suspicious behavior and flag potential fraud in real time, helping financial institutions reduce losses.
Earlier this year, Mastercard introduced an AI solution in the UK to help combat payment scams. One of its partners, TSB, leveraged the Consumer Fraud Risk tool. After piloting it for a few months, the bank saw an increase in fraud detection, which resulted in cost savings.
AI is effective because it draws on large data sets to allow for more accurate prediction and detection. At larger financial institutions, not leveraging AI to fight fraud proves to be challenging and unmanageable, particularly given the scale of daily payments that are processed.
In addition to detecting fraudulent patterns that humans may miss, AI can improve the accuracy of fraud detection 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,” Ido Lustig, Vice President of Risk and Identity Product at Checkout.com, noted in a PaymentsJournal article.
Leaning on Personalization
As the need for more personalization continues to grow, many companies are using AI to tailor experiences, whether in banking or retail settings.
Shopify, for example, announced earlier this year that it was going all in on AI with its Shopify Magic solution, which leverages generative AI and helps merchants create blog posts, product descriptions, and email marketing content. Its suite of AI tools also lets merchants better manage their inventory and automate the e-commerce process.
Similarly, in April, Klarna unveiled an AI-powered shopping feed that aims to provide consumers with personalized product recommendations in real time.
Just as AI looks to various data sets to detect fraud, the technology does the same in a different setting. AI-powered recommendation engines analyze customer data to offer personalized products and services, such as tailored shopping feeds, investment advice, or even loan offers.
AI Is Changing the Payments Ecosystem, but It Comes with Risk
In the past year, more financial institutions have been betting big on AI—and generative AI, in particular. That comes as no surprise given how much the technology is helping companies improve their workflows.
Although generative AI comes with many advantages, such as creating personalized recommendations and helping businesses simplify complex systems, it also carries risks.
Increasingly, fraudsters are using generative AI to impersonate others, leading to an influx of scams that leave many victims vulnerable, with large sums of money lost. The scams have become so intricate and real that it’s often hard to decipher whether the person on the other end is someone a victim knows or a fraudster.
According to Javelin Strategy & Research data, identity fraud scams affected 25 million people last year, leading to a loss of roughly $23 billion.
Although there are many benefits to leveraging AI, ensuring the proper measures are in place to combat fraudulent activities is just as important.
Final Thoughts
AI is revolutionizing the financial landscape by automating tasks, improving decision-making, and enhancing customer experiences. Financial institutions that embrace these technologies gain a competitive edge. As AI matures, we expect to see further innovations that will shape the payments space.
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- Source: https://www.fintechnews.org/the-power-of-ai-and-how-its-transforming-the-financial-landscape/
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