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Is AI Going to Change Fintech Security?

Jun 17, 2024

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Artificial intelligence has experienced unprecedented growth in the last few years, turning what was once a sci-fi concept into reality. This technology has been injected into almost every industry to streamline processes and automate tasks, and the fintech sector is no exception.

Modern financial systems have always relied on technological advances to bolster security and introduce new features. With AI opening new avenues, many are wondering: will AI change fintech security?

AI in Fintech

In its simplest form, the answer to this question is that AI has already changed the face of fintech security. Many companies within the sector have already employed AI to beef up security and help identify risks before hackers or thieves act.

There are numerous ways in which AI is being used, with those listed below being the most common.

Know Your Customer (KYC) Verifications

One of the most basic security measures in fintech transactions is customer verification. Often called Know Your Customer, this process involves verifying the information provided by a client by cross-referencing it with official identity documents.

AI is often equipped with optical character recognition (OCR), which enables the AI to read scanned documents. This streamlines the process of verifying if the papers provided by a customer match the information they supplied.

Implementing AI in this process improves the verification speed, but, more importantly, it boosts efficiency by removing the human error factor and preventing verification whenever the information does not correspond.

Attack Detection

According to a 2023 report by Sophos, approximately 64% of financial institutions surveyed were attacked with ransomware in 2022. Ransomware, among other attacks, is a constant threat to companies operating in the fintech sector, with hackers eager to access confidential financial information.

To mitigate the risks of being attacked, many fintech suppliers install AI that analyzes the vast amounts of data sent and received from company networks and servers. This analysis occurs in real time and can quickly identify suspicious patterns and activities.

Anything flagged by AI algorithms can be reported to security personnel to investigate and act on before an attack is launched or a vulnerability is exploited. This helps reduce the fallout from attacks and shows security teams where to bolster their defences.

Fraud Prevention

Aside from cyberattacks, fraud and money laundering are among the most prevalent threats within the fintech sector. These refer to criminal organizations using services to mask (or clean) their cash earned through illicit activities and make it appear as though it is from a legitimate source.

While companies in the fintech industry have always employed measures to identify and block these transactions, these have never been foolproof. With AI, the detection of money laundering is more precise and effective, limiting criminals’ chances of achieving their goals.

AI equipped with machine learning is trained to identify and raise the alarm on suspicious transactions, including attempted account takeovers, money funnelled through multiple channels, and large amounts of money being moved between accounts.

Automation

When money laundering, fraud, or attacks on an account are suspected, AI already alerts company security teams of the activity. However, many companies are going one step further by allowing AI to interact more extensively whenever such activities are detected.

Allowing artificial intelligence to freeze accounts and block transactions can stop many illicit activities before they are completed. This ensures the integrity of systems and prevents money from being transferred when it shouldn’t be.

However, it also allows security teams and the relevant authorities more time to investigate the circumstances surrounding the transaction. If everything is in order, the transaction can proceed, and the AI can be taught what circumstances are within allowable parameters, ensuring a false alert is not raised again.

Behaviour Analysis

Another area where AI is being employed is in tracking and building user-profile behaviour analytics. This delves into each user’s everyday practices, routines, and idiosyncrasies to help develop a standard practice profile.

When customers log into their accounts and perform transactions or activities far outside their regular behaviour patterns, AI can quickly identify them and alert the fintech operator or take proactive steps (as mentioned above) to protect the account.

Once verification has been performed to ensure that the user in the account performing the activities is the authorized person, services can resume. As with automation, this can assist in identifying possible account takeovers or stop activities in cases where an account’s security has been breached.

Safer Transactions

With the above roles undertaken by AI, financial technology companies are better equipped to handle cyberattacks and can more easily detect fraudulent transactions. They can do this much more efficiently and often in real time, meaning that no losses can occur that aren’t immediately noticed or prevented.

As AI secures financial transactions, other industries are also beginning to embrace it. The iGaming sector, for one, has also started using AI in a wide range of areas to ensure players are legitimate and that transactions are secure. Many sites, such as eCheck Casinos, are also using AI in their security measures to prevent attacks.

Conclusion

With corporations like Google, Meta, and OpenAI racing to create the most advanced AI technology, further roles in fintech security will undoubtedly emerge. These roles must be carefully balanced with the threats posed by AI.

These include the privacy of the massive amounts of data that AI uses, transparency as to how AI calculates things and the decision process it follows, and whether or not an AI holds any bias. The ethical issue of using AI must also be considered, with many OpenAI employees openly speaking against it.

If these risks are navigated correctly, the future of fintech security could be significantly transformed, hopefully benefiting every company in the industry and every user of fintech services.


NCFA Jan 2018 resize - Is AI Going to Change Fintech Security?The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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