Is AI Making Banking Safer or Just More Complicated? – Source: www.databreachtoday.com

Artificial Intelligence & Machine Learning
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Fraud Management & Cybercrime
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Next-Generation Technologies & Secure Development

As Banks Combat Fraud, Customers Feel the Strain of Overly Cautious Measures

Suparna Goswami
(gsuparna)

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August 23, 2024    

In today’s AI-driven world, banks are becoming increasingly vigilant, freezing accounts or demanding extensive documentation at the slightest hint of suspicious activity. Sending money, once a straightforward task, is now fraught with complexity. Want to send money to an old friend? Be prepared to prove you’re not part of an elaborate scam. Whether it’s a small transfer or a large amount, modern banking has turned into a delicate balancing act between convenience and security, and the latter often takes precedence.

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The rise of AI in fraud detection has been a game changer. Through real-time analysis, machine learning and pattern recognition, AI tools can flag unusual transactions and often catch fraud before it occurs. AI’s capabilities in anomaly detection allow financial institutions to be proactive, staying ahead of cybercriminals.

But AI has its flaws. One of the most significant issues is the high rate of false positives. John MacInnes, a retired professor from Edinburgh, encountered this new reality firsthand. He tried to send 15,000 euros to a friend in Austria, expecting it to be a quick and routine transaction. The process became an ordeal involving the fraud team at Starling Bank. When MacInnes declined to provide personal messages and tax documents to prove the legitimacy of the payment, the bank took drastic action – it froze his account. It wasn’t until media wrote about his plight that the bank admitted it went too far and unfroze the account. This incident sheds light on a growing challenge for banks: While caution is understandable, overly aggressive fraud prevention can alienate the very customers they aim to protect.

As fraudsters employ increasingly sophisticated techniques, institutions walk a fine line between preventing fraud and ensuring customer satisfaction. In the U.K., this challenge is becoming more pressing as banks prepare for the Contingent Reimbursement Model Code’s October deadline. The framework will require stricter compensation measures for victims of fraud, particularly those who fall prey to APP scams, where customers are tricked into sending money to fraudsters. As banks become more liable for reimbursing fraud victims, they are understandably adopting stricter fraud prevention measures. But in doing so, they run the risk of creating friction for customers, who bear the brunt of overzealous policies.

The New Normal

While additional security checks may feel like an inconvenience, they represent the new normal in banking. The rise of cyberthreats and the increased fraud liability for banks mean that institutions must adopt more stringent measures to protect both themselves and their customers. Banks need to refine these processes so that they become less burdensome while still maintaining a high level of security.

By making fraud prevention smarter, not just stricter, banks can improve the customer experience. AI will play a crucial role in this, but it must be used in ways that enhance the user experience. For example, AI could be better calibrated to reduce false positives, ensuring that fewer legitimate transactions will be flagged as suspicious. Also, banks can educate customers about the reasons behind additional checks to foster trust and understanding. If customers understand why these measures are in place, they may be more willing to tolerate the occasional delay or verification request.

As AI-driven fraud prevention continues to evolve, security and fraud teams must continually fine-tune it to balance security and convenience. By refining AI tools and customer-facing processes, banks can offer smoother, smarter fraud prevention without sacrificing the customer experience.