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Artificial intelligence (AI) never strayed far from the headlines last year, and 2024 looks set to be the same story. However, the risk of AI being used by bad actors could lead to problems for the financial services sector.
The rise of ChatGPT, and increased interest from various governments, meant that AI became a hot topic in 2023.
Across the financial services ecosystem, players have been keen to invest and work out how they can harness AI to deliver better outcomes and bigger returns on investment.
Regulators too are keen to play a part.
“We know AI has the potential to transform financial services,” said Jessica Rusu, the UK Financial Conduct Authority (FCA) data, information, and intelligence officer, during a speech last year.
“It offers benefits ranging from enhanced customer experiences and better consumer outcomes, faster fraud detection, and a financial landscape that adapts and evolves faster than ever before.”
The good
What is often forgotten is that AI was already being used, pretty well, by many.
"While much of the world is fixated on the promise of frontier AI, we often overlook the pervasive presence of the technology in our lives already,” said Scott Dawson, head of sales and strategic partnerships at DECTA.
“Consider the influence of AI on credit scores, for example, which impact significantly on our financial opportunities,” he said.
Dawson continued that the “preoccupation with the future” can sometimes blind people to what is happening right now. “Nevertheless, this has been an enormous year for development."
"AI has captured the world’s imagination in the last 12 months,” said Daniel Holmes, fraud prevention specialist at Feedzai. “However, what people perhaps haven't realised is that AI is a broad term.”
Holmes noted that banks, for example, have been using machine learning for a number of years to prevent fraud and financial crime.
“What has amplified consumer and media interest though has been generative AI,” he pointed out. “People can now easily access tools like ChatGPT and DALL-E and this has been one of the big breakthrough moments."
The bad
Holmes warned, however, that as well as being accessible to society, these tools are also available to criminals to either use directly or even create their own malign versions.
This is where AI may not be so promising for financial services.
“What generative AI will do is massively amplify fraud risks and fraud rates,” he warned.
For example, generative AI’s ability to clone voices and create more persuasive scripts will make scams more convincing, which Holmes warned subsequently scales the scam problem even beyond where it is today.
“Banks will need to respond to this both technologically and through forms of customer education."
Indeed, AI’s continued momentum is happening as scams continue to be a problem and regulation gets tighter.
In the UK, for example, new liability requirements for authorised push payment (APP) fraud are coming into place from October this year. These new rules from the Payment Systems Regulator will mean that there are very few times when consumers will not be reimbursed.
In the EU, meanwhile, the proposed Payment Services Regulation (PSR) also introduces a new requirement that will mean payment service providers (PSPs) need to refund a consumer if the consumer was manipulated by a third-party impersonating an employee of the firm.
“From a liability perspective there is lots of pressure from the media and governments when it comes to shifting the liability of a scam loss away from the customer and towards the bank,” said Holmes. “Data shows that the reality is that anybody can fall for one of these scams.”
Holmes continued that regulatory changes such as those in the UK will mean that PSPs “are dealing with a huge financial risk that they do not have today and will need to respond accordingly in order to better protect consumers and their bottom line”.
“The expectation is that once the UK regulation is live, the rest of the world will follow with their own form of the UK policy, with the overarching theme of siding with the customer more frequently when it comes to reimbursement.”
Companies have been awake to these growing risks, and their growing liabilities.
For example, at Mastercard, $7bn has been invested in developing into cyber and intelligence capabilities over the last five years.
“This makes AI central to how we now monitor and identify network vulnerabilities at speed, stop cyber-attacks from happening in seconds, and protect banks and consumers from scams in real-time,” Johan Gerber, executive vice president, security & cyber innovation at Mastercard, told Vixio.
Gerber acknowledged that cybercrime is on the rise.
“As bad actors seek to acquire the latest technology for their own ill-gotten gains we understand how critical it is for businesses to have the right cybersecurity in place to protect themselves and their supply chains,” he said.
Gerber continued that the risks are well documented and require constant cooperation and dialogue across the world. “Yet the benefits are clear and will be witnessed in how we accelerate risk identification, threat mitigation, and quicker response times.”
“AI can wield transformative powers for every organisation, from a small local boutique to a global critical infrastructure operator," he said, adding that AI’s speed, efficiency, and intelligence are delivering better outcomes for people and businesses alike.
For Gerber, AI’s potential to not only stop today's cyber-attacks, but also pinpoint and neutralise the ones lurking over the horizon, is unprecedented.
“With the right regulation AI won’t just help us secure today, it will enable us to anticipate threats and fortify trust and prosperity for tomorrow.”
