AI and ML in the fight against banking fraud
The global artificial intelligence (AI) in fintech market is expected to grow to more than US$9 billion this year, according to a study conducted by Research and Markets, as technology continues to transform how banks and other financial institutions operate.
According to the research, the global AI in fintech market is expected to grow from $7.25 billion in 2021 to $9.13 billion in 2022 at a compound annual growth rate (CAGR) of 25.9%, with the market is expected to grow to $24.17 billion in 2026 at a CAGR of 27.6%.
And banks worldwide are expected to spend an additional USD$31 billion on artificial intelligence (AI) embedded in existing systems by 2025 to reduce fraud, according to an IDC report, which also said fraud management featured strongly as a priority for banking executives.
Fraud detection leading to growth of AI in fintech
According to Research and Markets, the need for fraud detection in fintech or financial institutions is contributing to the growth of AI in the fintech market. AI or machine learning (ML) algorithms can learn new information from the data collected, the more data that AI manipulates, the more AI can be learned, and the banks can gain deeper insights with AI technology.
Technology has transformed how banks and other financial institutions handle their operations to survive in the market and enhance customer experience, from onboarding to payments. However, many of these organisations’ financial crime compliance units still heavily rely on lengthy manual processes, especially when it comes to carrying out checks for money laundering, terrorist financing, fraud, bribery, and corruption.
The biggest advantage of AI is that over time the algorithm builds on collecting more data and learning more about how to use it. The advantage is that it starts the moment the AI is deployed and continues to grow without interruption of contribution.
Using developments in AI to combat fraud
According to the 2020 Identity Fraud Report by Javelin Strategy & Research, financial institutions suffered a loss of USD$16.9 billion in 2019 alone due to account takeover and fraud identity.
And a survey of 142 banking executives around the world, conducted by Capgemini and Qorus for the World Retail Banking Report 2022, found that 70% of them believe they lack foundational data analysis and AI capabilities to compete long term. Capgemini claims the fraud detection systems powered by AI or ML algorithms minimise fraud investigation time by 70% and improves the accuracy of detection by 90%.
Advances in AI technology are also set to be utilised in international collaboration between governments. For example, the US and UK governments recently announced plans to encourage the development of new machine-learning technologies and information-sharing partnerships between financial companies to combat money laundering. More co-innovation between financial institutions and governments is needed to tackle current and future financial crime risks.
According to research last year by McKinsey, to thrive in the AI-powered digital age, banks will need an AI-and-analytics capability stack that delivers intelligent, personalised solutions and distinctive experiences at scale in real time.
“The advancement of artificial-intelligence (AI) technologies within financial services offers banks the potential to increase revenue at lower cost by engaging and serving customers in radically new ways,” said a report ‘Building the AI Bank of the Future’.
