Major industry players like Google and Amazon, as well as upstarts like OpenAI, released cutting-edge innovations that capitalized on AI’s revolutionary potential in 2022.

But AI-powered security applications — which can detect transaction fraud, develop robust user profiles, and maintain 100% compliance — are still only available to institutions with significant financial and technical resources to invest. For the rest of the financial world, these applications are out of reach — an unfortunate fact, considering fraud losses increased more than 30 percent in 2022.

With AI now at the center of industry conversations in 2023, the financial industry needs to find ways to democratize AI solutions and outsmart fraudsters, many of whom are eager to exploit loopholes in emerging technologies and capitalize on unstable economic conditions.

New tech means a new target for fraudsters

New technology is a prime opportunity for bad actors to target. These fraudsters are looking for every chance to swoop in and capitalize on unforeseen loopholes within emerging technology.

For example, fraudsters may abuse a new payment solution’s unclear dispute process. There’s risk involved with any new payment technology, but organizations can reduce this risk by developing an AI-backed security strategy that enables them to spot suspicious behavior before it’s too late.

AI-backed cybersecurity solutions like Brighterion can play a major part in this strategy. Our solutions take advantage of Mastercard’s global network to develop comprehensive user profiles that enable banks to respond faster to potential attacks. And with the speed at which fraudsters work today, having a market-ready AI model to kick start your fraud program is a great advantage over the opponent.

P2P fraud will remain a problem

Another defining challenge in 2023 will be preventing P2P fraud. One factor that complicates securing P2P transactions is that many fraudsters switch between channels to remain undetected. Fraudsters know that many financial institutions have one application in place per channel that detects fraud and AML. They have one solution for card payments, another for ATM transactions and a third for crypto transactions. To avoid detection, a fraudster may deceive someone through an account-to-account transaction, use that money to purchase cryptocurrency and use that cryptocurrency to make a transaction with a new merchant. Think of them as a bank robber who keeps changing getaway vehicles to confuse the police.

To counter these tactics, financial institutions need to invest in omnichannel solutions that offer visibility across the entire network. Instead of having to coordinate a series of individual responses, they can shut down the whole network and prevent stolen assets from making it any farther.

FIs will find ways to combat first-party scams

On the whole, financial institutions know how to spot signs of potential fraud: use of a foreign device, activity from a new location, a high quantity of transactions. What they’re less equipped to detect is customers falling victim to scams.

For example, a scammer may call someone to tell them they’ve won a $10,000 gift, but they have to send the caller $200 for shipping costs. The call recipient obliges and promptly loses their money. In this scenario, the fraudster has found a way to remove the bank from the equation and place all the responsibility on their target. They know that while the bank can verify the correct user is making the transaction, it can’t verify that someone has deceived them into doing something that goes against their interests.

Limiting the effectiveness of first-party scams will be a key hurdle for financial institutions to overcome in 2023. Many are investing in new machine learning algorithms that provide warnings when someone attempts to make a suspicious transaction. These tools give customers just enough friction to reconsider before hitting send.

An unstable economy will lead to increased credit delinquency

Secure AI solutions are essential for what promises to be an economically uncertain year. Due to mass layoffs, high inflation and a looming recession, credit card delinquencies are projected to spike to their highest rates since 2010. As a result, we’re also likely to see an increase in fraudulent behavior from desperate consumers who want to avoid defaulting.

Businesses need to leverage the power of AI to ensure they can handle these spikes in fraudulent activity. But unfortunately, many small businesses don’t have the capacity to develop their own AI solutions, with 80 percent of AI projects failing to scale past a proof of concept.

As far as other options, open-source solutions are effective at reducing cost, but can leave organizations at risk if they haven’t been developed for their specific needs. Instead, organizations should look to partner with larger cybersecurity companies that offer time-tested, easily implementable AI solutions.

AI will be the great stabilizer in 2023

As we enter 2023, innovations that should make it easier for businesses to operate are instead becoming just another attack surface. But AI applications that show promise in closing these vulnerabilities are becoming more widely available, allowing smaller financial institutions to enjoy the same level of protection on their transactions as the world’s biggest banks. By the end of the year, wider AI adoption could end up closing more doors on fraud than criminals are able to open — a welcoming sign for the entire financial industry.

Hear more from our CEO, Sudhir Jha, on his predictions for the industry on The Payment Journal’s Podcast.