AI-Powered Fraud on the Rise for Financial Institutions

As the digital landscape evolves, so too do the methods employed by those seeking to exploit it. A new study from fraud prevention and identity verification company AuthenticID has shown a significant increase in identity fraud, reaching a rate of 2.1% of transactions in 2024, up from the previous 1.27% in 2022. This rise in fraudulent activities is closely tied to the adoption and deployment of AI-powered solutions by cybercriminals targeting financial institutions.
An increase in occurrences of deepfake-related fraud has also been noted, affecting 46% of financial institutions over the last year. Deepfakes employ AI to generate synthetic media, skirting traditional verification mechanisms and posing significant challenges to risk management strategies within financial sectors.
New Tactics in Financial Fraud
Among the emerging threats, synthetic identity fraud remains a critical area of concern. Here, fraudsters blend legitimate and counterfeit personal information to concoct entirely new identities. This tactic allows them to establish credit profiles gradually, setting the stage for substantial fraud attempts down the line.
Garry Clement, the Chief Anti-Money Laundering Officer at Versa Bank, a Canadian digital bank, states: "Identity fraud with all of the current technology and the ability to use the dark web to create fake identities will continue to escalate and require subject matter experts and appropriate training and technology to thwart attacks."
Payment processors are particularly vulnerable, often falling prey to unauthorised transactions and social engineering, which facilitate the rapid movement of funds before systems can flag any suspicious activity. The report highlights a striking 250% surge in account takeover attacks, where attackers gain unauthorised access to legitimate accounts.
AuthenticID also reveals that attacks often peak on Tuesdays and Fridays, with noted spikes during notable periods such as tax season in April, the start of summer in July, and the December holiday season.
Geographical investigation within the US identifies Pennsylvania records the highest fraud rate, standing at 16.62% of transactions, with Maryland following at a rate of 7.40%.
The Shift Toward Digital Identity
The pace at which digital identity solutions are being adopted is another focal point of the research. Currently, 54% of consumers are utilising or planning to adopt digital wallets, although mobile driving licences have yet to see widespread acceptance, with a 33% uptake among consumers.
AuthenticID’s findings also indicate varying degrees of fraud across different types of identification documents. Employment Authorisation Cards top this list with a fraud rate of 4.79%, closely followed by passport cards at 4.41%, with state-issued identification showing lower, yet significant, levels of fraud rates.
In response to the rising tide of identity fraud and theft, Scott Goessling, CEO of lending technology provider SYFRR, comments: "SYFRR continues to see significant increases in identity fraud, identity theft, and first-person fraud in both online and in-person lending and account opening processes. Application, data security, and multiple layers of anti-fraud systems continue to be SYFRR's largest expense."
Gig economy platforms haven't remained untouched either, with one-third of US users impacted and millennials emerging as the prime target. These platforms face specific challenges related to payment method verification and user authentication.
Despite the increasing sophistication of deepfake technology, Blair Cohen, President and Founder of AuthenticID, notes: "Subtle clues in language and context can sometimes betray their authenticity. As the battle against misinformation intensifies, the quest for effective safeguards and consumer education against deepfakes remains imperative."
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