Industry perspectives on AI and transaction fraud detection

In today’s rapidly evolving financial landscape, the rise of digital transactions and technological advancements has brought exciting opportunities and unprecedented challenges.

As the world becomes increasingly interconnected, the threat of fraud looms large, demanding robust and innovative solutions. This is where Artificial Intelligence (AI) steps into the limelight, promising to revolutionize transaction fraud detection and bolster security measures. Mastercard and Fintech Nexus surveyed financial institutions (FIs) to learn their opinions about AI, how they use it, the latest digital payment rails, and their technology needs and challenges. In this blog post, we will delve into the recent survey results that shed light on the adoption of AI in the financial industry and explore how it is transforming the fight against fraud.

Survey highlights: A diverse and forward-thinking industry

The survey, encompassing a hundred financial institutions, highlights the industry’s diversity and forward-thinking approach. Among the respondents, 48 percent were acquirers, payment service providers and payment facilitators, while 37 percent represented issuing banks. This diversity demonstrates the growing interest in adopting cutting-edge technology across various financial sectors. The remaining 15 percent featured an assortment of organizations, such as mobile money providers, lenders and data analysts, signifying a thriving and collaborative ecosystem.

AI bolsters the fight against transaction fraud

The real breakthrough lies in AI’s impact on fraud detection. The survey revealed that nearly half (49 percent) of the respondents have already integrated AI into their systems, while the remaining 51 percent use other solutions, primarily rules-based. However, 93 percent plan to invest in AI in the next 2-5 years. This overwhelming interest in AI signifies a paradigm shift in how the financial industry perceives technology’s potential to combat transaction fraud.

The power of AI and machine learning

Of those already using AI, 47 percent identified rules-based systems as their primary technology, while 37 percent reported using AI and machine learning. The convergence of AI and machine learning with traditional systems promises unparalleled efficiency, allowing financial institutions to streamline workflows and enhance fraud detection accuracy. As AI continuously learns from new data, it adapts to emerging fraud schemes, becoming increasingly effective over time.

Driving forces behind AI investment

The survey reveals that “increased fraud detection” ranks as the primary driver (63 percent) behind AI investment, reflecting the industry’s unwavering commitment to protecting customers from transaction fraud. Moreover, “fewer false positives” emerged as a secondary priority, highlighting the desire to strike a balance between rigorous security measures and seamless customer experiences.

Alternative payment methods on the rise

In an era of rapid digitalization, the rise of alternative payment methods has become inevitable. Real-time peer-to-peer (P2P) payments, offered by 44 percent of respondents, reflects the industry’s readiness to adapt to changing consumer preferences. Additionally, digital wallets have gained significant traction, with 38 percent of respondents providing this payment option. With an additional one in three FIs planning to offer non-card payments in the near future, it is evident that financial institutions are embracing technological advancements in response to customer demands.

Combatting A2A fraud risks with AI

In the realm of real-time account-to-account payments, FIs are vigilant in their fight against fraud risks. The survey highlights “social engineering and authorized payment push scams” as the primary risk (61 percent) in A2A transactions; however, an overwhelming 65 percent of respondents expressed optimism that AI can effectively combat these challenges. By leveraging AI’s learning capabilities, FIs can proactively detect evolving fraud schemes, ensuring customer protection and boosting accuracy.

Overcoming barriers: The path to a bright future

Despite the undeniable potential of AI, the industry acknowledged certain barriers to widespread adoption. Respondents cited ease of deployment as the most crucial success factor in choosing an AI solution. Real-time scoring, automated feature engineering and model explainability also rank high on the list of priorities. As the industry seeks to overcome these challenges, the outlook for AI integration remains bright, with financial institutions actively exploring innovative solutions that streamline operations and enhance customer experiences.

A promising future with AI tackling transaction fraud

The survey results paint a vibrant picture of the financial industry’s embrace of AI. With a focus on increased use of AI for transaction fraud detection, financial institutions are poised to create a secure and seamless banking experience for their customers. By harnessing AI’s immense potential, the industry as a whole is ready to tackle fraud head-on, instilling confidence in consumers and ensuring security in a new era of technological financial services. With AI as their ally, financial institutions are well-equipped to navigate the ever-changing landscape of digital transactions and increase their success in the fight against fraud.

To read the full survey results, download AI perspectives: Transaction fraud.