Financial fraud: How does AI spot fraudsters?

by | Jun 25, 2024 | Identity check

Financial fraud is a scourge with far-reaching economic consequences for players in the banking sector. As advances are made inartificial intelligence, new techniques are making it easier to spot financial fraud.

Let's discover together the AI technologies that will enable you to strengthen your security by identifying the most sophisticated frauds.

 

Several types of financial fraud

 

Financial fraud has many faces, and each method exploits specific flaws in banking systems. In this section, we explore 3 main types of fraud: document fraud, identity fraud, and payment and transfer fraud.

 

Financial fraud using false documents

 

Document fraud represents a major threat to the financial sector. It facilitates a variety of illegal activities under cover of false documents. Find out how these forgeries are used, and the challenges involved in detecting them.

 

What is document fraud?

Document fraud involves the creation or use of false documents to gainundue advantage. In the financial field, it includes: obtaining credit, money laundering, terrorist financing, carrying out fraudulent transactions, defrauding individuals or companies, etc.

 

Why use false documents?

From counterfeiting to forgery, false documents are used to fool bank verification systems. They are manufactured to enable fraudulent activities while avoiding automatic detection.

 

Why does fraud go undetected?

Even if false documents are unrealistic, fraudsters can slip through the net. With the rise of digital technology, advisors no longer see their customers in branch, nor do they check their documents manually - visually. Everything is done remotely and automatically. So spotting fraudsters has become a real challenge.

 

What are the most common forged documents?

Among the most frequently falsified documents are identity papers (French national identity card, biometric passport, residence permit or driving license). Bank statements, tax returns, pay slips and employment contracts are also prized by counterfeiters.

In fact, these documents are required for most banking transactions. They therefore make it easier to obtain undue advantages.

 

Checking document authenticity with AI

To spot and detect document fraud, new technologies and artificial intelligence are invaluable. Here's how AI and the latest digital advances can help verify theauthenticity of identity documents.

 

Checking information security

Some official documents have informational security keys. These are letters and numbers that can be used to verify the veracity of information by means of specific encryption. These security keys are notably present in the MRZ band of identity cards and passports.

 

A few visual checkpoints that are difficult to reproduce

DOVID holograms, watermarks, microprinting, guilloches, etc. Identity documents are full of complex visual controls. These are the result of specific printing processes that require sophisticated machinery. Checking these visual controls is a highly effective way of detecting attempted fraud.

 

Financial fraud using a false identity

 

Identity fraud is a growing threat. It exploits personal information to commit fraudulent acts. Let's explore the different forms this scam takes, and strategies for detecting and preventing it.

 

What is identity fraud?

Identity fraud involves stealing or falsifying personal information in order to carry out fraudulent actions without being detected. This type of fraud can take several forms, including fictitious identity, identity theft and synthetic identity.

 

Fictitious identity

Fictitious identity is a form of fraud in which information is completely invented in order to create a false identity from scratch. This method enables fraudsters to carry out criminal activities without being identified. Counterfeiters combine name, address, social security number, etc., to create a fictitious identity. Using their fictitious identity, criminals open bank accounts, obtain credit cards and take out loans.

 

Identity theft

Identity theft occurs when an impersonator uses another person's personal information, without their consent, to commit fraudulent acts. This can include the use of names, addresses, credit card numbers, social security numbers, etc., to commit fraudulent acts.

Victims of identity theft can suffer serious financial consequences and damage to their reputation. Identity theft is particularly formidable, since the onus is on the victim to prove his or her innocence with every fraud committed.

 

Synthetic identity

Synthetic identity combines real and fictitious information. For example, the fraudster will use a fictitious name, address and date of birth, together with a real (spoofed) social security number. This method enables criminals to bypass certain security measures and build up a credible false identity over the long term.

 

How to detect and avoid identity fraud?

Detecting and preventing identity fraud requires a multi-layered approach. This means using a variety of control techniques and procedures. Let's take a look at some of the main strategies for identifying identity fraud.

 

Check the consistency of the customer file

The file consistency check involves an in-depth analysis of the information provided by the customer to ensure that it makes sense. The aim here is to find inconsistencies and indications of financial fraud. To do this, companies use automated systems and control rules. They identify potential anomalies that require further investigation.

 

Implement biometric authentication

Biometric authentication provides an additional layer of security for customer accounts. It secures account access and helps prevent financial fraud. Biometric authentication can be characterized by fingerprint, facial, iris or voice recognition. These unique features ensure that the user is indeed the owner of the account he or she is accessing.

 

Check identity with external sources

External databases are used to cross-check the information provided by the customer to ensure its accuracy. These can include government databases, public registers, credit checking services, etc.

The presence of an individual in an external database can indicate that his or her identity is real (neither fictitious nor synthetic). This reinforces the trust placed in the individual. For example, the Impôts.gouv API can be used to check a tax form. If it matches the name, the user's trust score can be increased.

Other databases record fictitious identities. These can be used to indicate when a user is attempting to commit financial fraud, and to block access in good time.

 

Financial fraud on payments and transfers

 

Payment and transfer fraud uses a variety of techniques to divert funds. Let's find out more about this type of fraud, which can get companies into trouble.

 

What is payment fraud?

Payment fraud is the execution of fraudulent transactions on behalf of a company or individual. This can include unauthorized use of credit cards, cheque forgery or manipulation of bank transfers for embezzlement purposes.

 

What's fraud to the president?

President or CEO fraud is a technique that has become more widespread in recent years. In this case, the perpetrator poses as a company director and requests money transfers. This request is often 'urgent and confidential'.

Typically, the thief sends emails and makes phone calls to finance managers. He or she increases the pressure on them to make transfers quickly. Psychological manipulation, knowledge of internal company structures and the use of deepfakes make this method particularly effective.

 

How to avoid bank data phishing?

Phishing for banking data is also known as phishing. It's a relatively common technique in which scammers send forged e-mails, messages and links. These are designed to trick the victim into revealing his or her banking details.

 

How to secure banking transactions?

To protect banking transactions against fraud, it's becoming urgent to implement rigorous, multi-faceted security measures. Let's take a look at some of the measures that can be put in place right now.

 

Request strong authentication

Strong Customer Authentication (SCA) is a requirement of the European Payment Services Directive (PSD2). It requires dual authentication using independent methods to validate a transaction.

Two-factor authentication prevents customers from falling victim to fraudulent transactions.

 

Strengthening the security of the relationship

Securing the connection process includes identity verification during remote account creation. Reinforcing controls at the point of contact can help detect fraud attempts or define users to be monitored.

 

How does AI thwart financial fraud?

 

Today, artificial intelligence stands as a bulwark against financial fraudsters. Let's explore how a skilfully constructed combination of AI, new technologies and anti-fraud experts will secure financial infrastructures.

 

Combining several technologies

 

To effectively detect financial fraud, there's AI, but there's more to it than that. Artificial intelligence is combined with a number of other technologies to create the ideal conditions for processing.

 

Information extraction and visual checks

AI uses OCR, IDP and intelligent vision to collect and control document data.

 

OCR to extract information

OCR stands for Optical Character Reconigtion. This technology enables AI to convert images (containing text) into editable text. OCR facilitates theautomatic analysis of standardized forms and documents, such as CERFAs. OCR capability is crucial for detecting anomalies in financial or administrative documents.

 

Intelligent document processing or IDP

IDP stands for Intelligent Document Processing. IDP uses machine learning models. This enables structured data (in key-value mode) to be interpreted and extracted from unstructured documents.

 

Vision and visual control technologies

AI-based systems use image recognition to inspect documents. This vision technology can distinguish signatures, holograms, etc. - in other words, all the visual security elements incorporated into official documents.

 

Identifying patterns of financial fraud

Detecting financial fraud relies on identifying patterns and anomalies in transactions. AI makes it possible to spot these patterns accurately and quickly. Let's explore the financial techniques used by AI to identify and prevent fraudulent activity.

 

What is a financial fraud model?

A financial fraud pattern is a configuration or sequence of behaviors or transactions that indicate potentially fraudulent activity. These patterns are based on common patterns observed in previous fraud cases.

By analyzing vast quantities of data, AI excels at identifying these similarities; spotting atypical behavior; identifying anomalies often undetectable by humans.

 

Behavioral analysis of transactions

Artificial intelligence uses behavioral analysis to track transactions in real time and identify unusual actions.

For example, if a customer suddenly makes large purchases in a foreign country, with no travel history. In this case, an alert can be raised to prevent the transaction. This approach helps to detect certain types of fraud.

 

Machine learning and proactive detection

Machine learning plays a crucial role in proactive fraud detection. This enables AI to continually learn from past data to anticipate and spot new forms of fraud. This is achieved by using techniques such as clustering, neural networks and random forests.

 

Hybrid verification: AI-powered experts

 

Between AI and experts, the fight against fraud is becoming increasingly robust. Hybrid verification aims to bring together AI and financial fraud experts.

 

AI-automated pre-inspection: what are the ambitions?

AI-automated pre-checking makes for an ultra-smooth experience. At least, for customers who have no suspicion of fraud (we'll deal with those who do in the next section). This automation also frees employees and experts from manual verification for reliable files.

 

Immediate processing for a smooth customer experience

Artificial intelligence can process information in real (or near-real) time. This makes it possible to validate the actions of the majority of customers, offering them uninterrupted service. Thecustomer experience thus benefits from greater satisfaction and loyalty.

 

Free employees from manual identity verification

By automating identity verification tasks, AI enables employees to focus on higher value-added tasks. Examples include potentially fraudulent, more complex or high-profile customer cases.

 

Reduce the burden of false positives

One of the major challenges in fraud detection is managing false positives. The number of false positives varies according to 2 factors: the effectiveness of the AI and the level of risk accepted by the customer. Artificial intelligences are becoming more and more powerful by the day. As for the rate of risk accepted, this can be customized according to the customer's expectations and legal responsibilities.

 

Your expert focuses on suspected financial fraud

By filtering suspicious transactions, AI helps to focus the efforts of financial fraud experts.

 

There's no substitute for an expert eye

Despite technological advances, the human eye remains indispensable for detecting even the most subtle frauds. Experts can interpret contextual clues and nuances that algorithms may miss. Their judgment, based on experience and intuition. Elements required to assess complex cases and make informed decisions.

 

AI & Expert, hand in hand to effectively combat financial fraud

AI and human experts form a formidable team against financial fraud. Their combination in the case processing chain offers a remarkable detection rate.

  • Information extraction: OCR and Intelligent Document Processing (IDP) technologies
  • File pre-processing: Artificial intelligence, enhanced by machine learning
  • First validation: Decision on 'simple' files, collection of new documents if necessary and transmission of complex files to experts.
  • Controlling complex cases: The experts focus on the most complex cases, those on which they will have a real impact.

The result is greater efficiency, lower costs and greater security for the company's infrastructure.

Spot fraud attempts in a matter of moments

Datakeen helps you strengthen your security against fraud. Our artificial intelligence tool verifies customer documents and identities. Detect fraud attempts while maintaining a smooth and pleasant customer experience.

Frequently asked questions

Behavioral analysis tracks transactions in real time to spot unusual or suspicious actions. For example, a large purchase abroad with no travel history may trigger a fraud alert.

Also known as CEO fraud, this technique involves the perpetrator posing as a company executive. The aim is to request urgent and confidential money transfers.

Financial fraud involves illegal acts aimed at deceiving or stealing funds, assets or confidential information. This can include document fraud, identity theft, and payment and transfer fraud. AI can help prevent this particularly dangerous type of fraud.