As technology advances rapidly, new digital payment methods have emerged in recent years, making our daily transactions quicker and more convenient and enabling banks and financial institutions to cut costs and streamline operations. However, with these changes come new challenges: as cashless transactions take hold, digital banking fraud activities are also surging worldwide.

Cybercriminals are continuously adapting their tactics to exploit the weaknesses of digital payment methods across various channels, such as mobile and online transactions, making it increasingly challenging for banks and financial institutions to identify and prevent fraudulent activities.

While artificial intelligence solutions are helping banks and financial institutions fight digital payment fraud, it has become a double-edged tool that is being used by cybercriminals to now generate fake text, audio, and video content to not only deceive victims but also the software designed to protect financial systems and consumers.

The statistics are alarming, with data analyzed by US-based NICE Actimize showing that attempted global fraud transactions jumped by 92% and attempted fraud amounts surged by 146% in 2022 compared with the previous year.

In 2023 alone, digital payment fraud schemes totaled $485.6 billion in projected losses worldwide, according to the Nasdaq Verafin 2024 Global Financial Crime Report.

The European Commission’s instant payments legislative proposal, which will be implemented early this year, has accelerated the need for EU banks and financial institutions to invest in advanced technological solutions to keep pace with the hi-tech fight against scammers.

Bank fraud activities

Cybersecurity is a critical priority for both customers and banks, with more than one in every five customers having been victim to a phishing or identity theft attempt. In contrast, 37% of bank executives fear that AI tech puts their institutions at greater risk of a successful cyberattack, according to Sopra Steria’s latest Digital Banking Experience Report 2023.

Some more common types of digital banking fraud include authorized push payments, phishing scams, identity theft, account takeover, and credit or debit card fraud. To achieve this, fraudsters typically use social engineering to trick victims into believing they are legitimate people or entities to get them to authorize payments or hand over their account details.

However, scammers are increasingly using AI as it can generate realistic text by replicating prompts or content. New language model-based tools can also engage in human-like text-based conversations to deceive victims and convince them to perform actions that benefit the criminals.

Voice cloning to commit bank fraud is also becoming more widespread. Used to replicate a person’s voice, scammers pose as friends or relatives of victims to convince them to urgently send money by creating a fake emergency. But even more concerning is that voice cloning tools are now being deployed to hack into bank accounts with lenders that use voice recognition prompts as part of their customer login processes.

According to a 2023 global study by McAfee that polled 7,000 people, one in four said they had experienced an AI voice cloning scam or knew somebody who had. The McAfee research also found that fraudsters can also easily copy accents from around the world with voice cloning tools.

In January 2024, an MNC in Hong Kong lost $25 million after an employee was tricked by deepfakes of the CFO and his co-workers in a video call.

Meanwhile, banking customers in France have reported the highest number of bank data hacks in Europe, research by our Digital Banking Experience Report 2023 found.

Our research found that almost one in six, or 15% of French customers, complain that the security of their data has been compromised, compared with 10% of UK customers, 10% of Italian customers, and 9% of Swedish banking customers. However, nearly two out of three French customers (63%) are satisfied with their bank’s cyber-attack response. Our research found that this is the second-highest level of satisfaction in Europe, after the UK, at 71%.

Picture: More than 1/5 customers has already been victim to a phishing or identity theft attempt. © Getty Images
More than 1/5 customers has already been victim to a phishing or identity theft attempt. © Getty Images

How technology is tackling fraud 

Banks and financial institutions have traditionally used fraud monitoring solutions with rules-based engines to identify fraudulent transactions. However, this method has limitations – particularly in the context of instant payments – as they are driven by hard-coded rules that can’t adapt to evolving threats, as well as binary rules that are unable to handle complex input variables and can’t detect fraud in real time.

However, banks are increasingly turning to advanced technological solutions such as AI algorithms in the fight against fraud, to identify anomalies and unusual patterns in transaction data, enabling financial institutions to detect scams effectively, according to Sopra Steria’s Digital Banking Experience Report 2023.

Our research shows that AI tools have the potential to identify and neutralize cyber threats originating from malicious software such as Trojans, viruses, and rootkits. By doing so, they can protect sensitive data from breaches, ensuring the security of banks and their customers.

These tools are essential for threat detection and response, as they can handle vast quantities of historical and financial data and learn from each attack. They can detect irregular network traffic, system access, and user activities and continually enhance their defense mechanisms. Consequently, they enable organizations to proactively prepare and protect their systems against cyber threats.

AI-powered biometric behavior analysis and machine learning tools can also detect fraud and phishing attacks by analyzing crucial indicators to prevent account takeover and identity theft.

For example, Sopra Steria developed a new AI-powered solution for Iberpay, a Spanish interbank payments company, that detects and categorizes fraud risks for instant payments. Our solution continually improves by adding new information about detected fraud attempts to its database, making the algorithm more efficient and effective over time.

Future innovations in fraud prevention

Emerging technologies have the potential to revolutionize fraud prevention in the banking sector. Blockchain and decentralized technologies are being explored for enhancing security as they offer higher transparency. At the same time, biometrics, behavioral analytics, and other innovative approaches are also being considered for future fraud prevention strategies.

These technologies can help provide a more secure and seamless authentication process, making it difficult for cybercriminals to commit financial crimes. By exploring these technologies, financial institutions can develop more robust fraud prevention strategies and provide their customers with a safer and more secure banking experience.

Challenges and ethical considerations

According to Sopra Steria’s Digital Banking Experience Report 2023, although AI can improve cybersecurity and risk management in banking, several challenges must be addressed, such as ensuring data privacy and security, maintaining data quality, and gaining customer trust.

To overcome these obstacles, banks must communicate effectively with their customers by demonstrating how AI can enhance customer service, provide personalized financial advice, and improve security.

Our research found that traditional banks also need to better communicate their security measures to customers, as 35% believe digital banks are more secure than conventional ones.

However, the EU’s digital sovereignty policy is expected to help with the ethical challenges of deploying AI to fight cybercrime, as it aims to provide a legal framework for how data flows between member countries. It has been designed to ensure there are no security loopholes and will protect consumers’ privacy by giving them greater control over their data and where it is stored.

It also means that banks and financial institutions operating within the EU will be subject to tighter regulations that hold them accountable for data breaches or cyberattacks.

Traditional banks need to better communicate their security measures to customers. © Getty Images

How Sopra Banking Software can help

Sopra Banking Software has been at the forefront of protecting against fraudulent activities in the instant payments sector in Europe since 2017.

Our SaaS solution for instant payments utilizes the potential of artificial intelligence and machine learning to identify and prevent all types of fraud in real-time and cover regulatory requirements such as sanctions screening, IBAN name checks, and anti-fraud measures. The solution also combats money laundering. The cloud-native architecture operates 24/7 year-round with an uptime of 99.999%, ensuring continuous protection against fraudulent activities.

By adopting these advanced technologies, we have significantly improved the efficiency of fraud detection in real-time. These cutting-edge technologies have enabled us to reduce the cost of fraud and increase the efficiency of fraud detection in real-time by enhancing hit rates and reducing false positives.

Sopra Banking Software also offers a sanctions screening service to screen the sanctions list daily, which is one of the mandatory requirements under the European Commission’s instant payments legislative proposal.

By partnering with Sopra Banking Software, banks can benefit from our expertise and knowledge to ensure successful digital transformations and compliance with instant payment regulations.

For more expert content on industry outlooks and innovation, subscribe to our newsletter or visit our Insights page.

Erika Kessler

Product Marketing Manager for Payments

Sopra Banking Software