According to a study conducted by Forrester Consulting, commissioned by Experian, a leading global information services provider, India has recently experienced a significant upswing in fraudulent activities. The study reveals that a staggering 64% of respondents acknowledged experiencing an increase in fraud losses over the past year. This concerning trend is compounded by the fact that 67% of these respondents are currently grappling with the challenges of keeping pace with the rapidly evolving landscape of fraud threats.
The study underscores that the future of effective fraud prevention lies in the realm of artificial intelligence (AI) and machine learning (ML) technologies. These cutting-edge solutions possess the capability to rapidly analyse extensive datasets, promptly identify anomalies, and unveil fraudulent patterns. This proactive approach not only safeguards businesses from substantial losses but also represents a crucial step forward in fortifying the integrity of financial ecosystems.
Notable surge in fraud losses for financial services
The findings reveal that year-on-year fraud losses are increasing for nearly two-thirds (64%) of respondents, with financial services organisations reporting the biggest increase in losses. There are several factors driving this surge in fraud attacks, such as persisting financial pressure on consumers, numerous data breaches leaking sensitive information onto the dark web, and the arrival of publicly accessible Generative AI – which has lowered the technical skills required to conduct fraud.
The volume of fraud attacks has gone up in almost every category. Synthetic identity attacks, where real and fake information are combined to form new identities, are on the rise, particularly in financial services sector. This is closely followed by identity theft attacks and account takeover attacks. In the eCommerce sector, friendly fraud attacks, where customers dispute legitimate charges, have grown the most for merchants, followed by synthetic identity attacks.
Fraud prevention hurdles: fingerprinting and referral surge
According to the study, the biggest challenge limiting businesses’ ability to prevent fraud is a lack of device fingerprinting for fraud identification (62%). The second is an increasing number of referrals, causing increased delays and costs (56%). Recognising the urgency, businesses emphasize the crucial role of device data in passive customer screening.
The top fraud-related priority is improving the explainability of ML models (65%), which shows how important ML has become to fraud prevention. Transparent ML models allow for human oversight so that unintentional bias can be identified. This capability is essential to ensure ethical AI use and to comply with a future AI regulatory framework.
AI/ML: shaping the future of fraud prevention
Nearly two-thirds (67%) of businesses believe that the future of fraud prevention will be driven by AI/ML-powered solutions. The main benefits of using ML fraud solutions are an increase in acceptance rates, reduced losses through greater fraud detection accuracy and a decrease in the volume of manual reviews and false positives. This is critically important, considering that 73% of businesses find that false positives cost their business more than fraud losses.
The research shows that the most crucial factor when considering AI/ML-based fraud prevention – for 88% of respondents – is continual automatic model retraining to stay at pace with an evolving fraud threat. As Generative AI heightens the fraud risk, this capability is critical for businesses to rapidly respond to changing fraud patterns and stay at the forefront of fraud prevention.
“As technology advances, the landscape of fraud undergoes shifts, creating new complexities. The rise of advanced technology transforms fraud dynamics, challenging established securities, and breaking down barriers. Addressing this challenge requires a potent solution – Artificial Intelligence (AI). Unlike traditional methods, AI excels in swift adaptation and real-time analysis, actively defending against ever-changing threats. Unlocking the power of data and machine learning, AI becomes a custodian at digital gateways, ensuring consumer protection and preventing substantial losses for businesses. It plays a pivotal role in fortifying security, protecting businesses from significant financial risks, and building a robust credit ecosystem.” says Manish Jain, Country Managing Director, Experian India.
Experian’s study is based on the survey gathered insight from 308 fraud managers in the financial services, telco, and eCommerce sectors across ten countries in the EMEA and APAC regions: India, Denmark, Germany, Australia, Italy, New Zealand, the Netherlands, South Africa, Spain, and Turkey.