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5 Ways AI Prevents Fraud in Banking and Fintech

Financial fraud is on the rise. Luckily, so is the use of anti-fraud AI. Learn the latest, including new developments in voice AI, here.

May 1, 2023 by Jean-Rémi Larcelet-Prost
5 Ways AI Prevents Fraud in Banking and Fintech

The fintech revolution makes banking quicker, easier, and more accessible for all. Connected technologies help people with traditional accounts complete daily banking tasks from anywhere, at any time. Fintech is also essential for financial inclusion: Smartphone apps and web-based tools allow people without bank accounts—including 7.1 million unbanked households in the U.S. as of 2019, the latest year for which the FDIC provides statistics—to access crucial financial services, from digital payments to peer-to-peer lending.

But broader digital connectivity in banking also carries risks. Hackers and fraudsters are always coming up with new ways to divert funds into their own pockets—and they’re doing so with abandon. Between 2020 and 2021, fraud losses reported to the FTC grew more than 70%, to a total of $5.8 billion in the latter year.

Luckily, banks, fintechs, and other financial institutions are doing all they can to stay ahead of the crooks. Increasingly, they’re using artificial intelligence to stop financial fraud before it occurs. In fact, anti-fraud AI is on the rise in the banking sector. According to an NVIDIA survey, 10% of financial service providers said they used AI-based anti-fraud technology in 2021. By 2022, that figure grew to 31%, more than tripling year over year.

But how does AI for fraud prevention actually work? Lots of ways. Here are just a few examples.

Anti-Fraud AI for Banking and Fintech: 5 Examples

1. Machine Learning for Data-Driven Fraud Detection

At the heart of AI fraud prevention, you’ll find big data—and a combination of technologies that are only getting better as AI matures. First, there’s data mining. It isn’t the newest digital tool to detect fraud, but AI makes it more effective with each passing month.

Here’s how it works: A computer system amasses a huge data set of consumer behavior (and fraudulent activity). When a transaction falls outside the pattern, the system flags it for review. Ditto for activity that matches the patterns of previous fraud attempts.

The second technology in this fraud-detection stack is a form of AI that makes data mining much more effective: machine learning, in which algorithms continually improve accuracy over time. With a combination of data mining and machine learning, fraud-detection AI is always improving—and fraud detection is the first step toward prevention. Today’s anti-fraud technology spots fraudulent transactions and stops them before they can go through.

Of course, every now and then, it might flag a legitimate transaction. That’s when communication with customers comes into play. And, yes, AI is showing up in these communications technologies, too.

2. Push Notifications for Unusual Account Activity

Say a fraudster has your debit card number and is trying to buy something, either online or in person, using your identity. Anti-fraud AI can detect that attempt and block the transaction. Then it can send you a notice asking if that’s you trying to make the purchase, so if it made a mistake, you can free up the account.

Today, many of these notifications arrive as emails or text messages—but that’s changing, thanks to the rise of voice AI.

3. Conversational AI for Transaction Verification

Conversational AI allows an automated system to react to human speech in real time, creating dynamic, lifelike discussions. That accomplishes two essential goals for fraud detection: First, it helps consumers trust your voicebot. Second, it allows voicebots to collect the data their systems need to verify appropriate transactions and cancel the fraudulent ones.

Talking to your customers is an essential piece of preventing fraud. Anyone may break their behavioral patterns for any reason; you certainly don’t want to cancel a legitimate transaction. Checking with customers bridges the gap between aggressive fraud deterrence and consumer convenience—and with conversational AI, these verifications can be completely automated.

This transition to voice-based verification will make push notifications more accessible and convenient for all users. But there’s another way voice AI can help prevent financial fraud.

4. Voice AI to Prevent Voice Phishing (or Vishing) Scams

Vishing is an increasing problem for financial institutions. In these voice phishing scams, fraudsters call your customers, often using poor-quality TTS voices to automate the attempt. They may claim to represent you. They may say they’re from the IRS. Whatever they claim, they ask for—and, too often, get—personal information they can use to drain account credentials.

This poses a challenge to banks, because your systems aren’t involved in the scam. You can’t control them. So the key to preventing vishing is to give customers the power to authenticate you. One innovative way to achieve this goal is to present a single, unmistakable voice for your brand: a fully custom-built branded TTS voice, also known as a custom voice, unique to your institution, built on neural networks that produce warm, lifelike speech.

The human brain is wired to recognize voices. When a customer knows how you should sound, they’re less likely to fall prey to vishing scams. They’re also more likely to trust your voice AI systems across use cases—from fraud prevention to customer service. And voice AI works in the other direction, too; it can also help you authenticate the people you serve.

You may know your customers, but do they know you? With a custom branded voice from ReadSpeaker, the answer is an emphatic >yes.

5. Voice Biometrics for User Authentication

Authentication is how you make sure you’re dealing with the right person during banking interactions. Voice authentication is a new form of biometrics that can prevent identity theft in voice-based interactions between banks and consumers. Voice biometrics uses AI to identify a speaker’s voice as belonging to them and only them.

Biometrics are already used for verification in a lot of fintech apps (think of Apple’s thumbprint or face recognition, which sometimes double as log-in credentials for fintech apps). But voice biometrics may be even more secure, with more than 100 unique identifiers contained within the human voice.

But, of course, these voice biometrics systems also need to walk users through the log-in process—and that requires voice output. A recognized custom branded voice gives consumers the trust they need to adopt this new verification model. After all, when people recognize your voice, they know they’re dealing with the real you—and that’s as true for a brand as for an individual.

Voice AI and Building Trust with Financial Institutions

Know your customer (KYC) is an important concept for fintechs, neobanks, and traditional financial institutions. Essentially, this practice requires you to clearly identify customers prior to opening accounts. That means collecting key data: names, addresses, social security numbers. But knowing your customer doesn’t necessarily translate to your customer knowing you.

In an age of vishing and online financial fraud, that disconnect leaves customers vulnerable to hacking attempts. It’s no longer enough to verify users; you must also give them a way to verify you right back. And one of the most fundamental markers of identity is your speaking voice.

When it comes to financial transactions, consumers aren’t always comfortable with automated interactions. Many older adults (and others) would rather talk to a human agent than use a chatbot or an unnatural-sounding voicebot. But automation is essential for taking your services to scale. High-quality, lifelike TTS voices alleviate customer discomfort, while a recognizable brand voice builds trust. Together, these features translate into higher usage rates for customer-facing automation.

ReadSpeaker provides custom branded TTS voices that set you apart from scammers and competitors alike. No one else can use your custom TTS voice, and our team of computational linguists works with you to craft a voice that matches your brand identity with precision. That helps customers know when your outreach is genuine—and when it’s time to alert the anti-fraud AI.

With financial services, verification must run in both directions, from bank to consumer and back again. Empower your customers to fight fraud with an instantly identifiable—and verifiable—custom TTS voice, ready for all your voice outreach channels.

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