Fraud has been on the rise in recent years, evolving with changing circumstances like the global economy, advances in technology, and changes in regulation.
Businesses who wish to stay competitive – and profitable – need to be aware of the risks they face. From speaking with executives of financial technology companies, some common challenges have become clear – and they mirror the ones I am seeing in the wider identity verification and fraud prevention spaces.
Here are my top 3 business risks to watch out for this year:
- The rise of synthetic ID fraud: The increasing use of synthetic media stands out as a growing concern for the fraud prevention community. Synthetic media fraud will likely continue to rise over the next 12 months as fraudsters see it as an efficient way to facilitate the opening of new fake accounts by taking advantage of generative AI. Deepfakes and synthetic document images can go undetected for longer periods of time, therefore maximising ROI for fraudsters.
Synthetic IDs are a specific type of synthetic media, which is a category that also includes generative AI documents and deep fakes. While synthetic IDs are generally datasets made up of multiple real sets from real people, meaning that they will pass data checking services (as the data is all individually correct) – deep fakes are convincing but fake computer-generated documents. Fraudsters can even use your own face when creating deepfakes to defraud you.
- Increasing regulations mandating zero bias: We’re also seeing regulatory bodies becoming less forgiving, therefore we expect new record-high fines to be issued in 2023 across multiple industries. Historically, the hardest-hit industries have been banking and financial services, but more recently the gambling sector has received record-breaking fines as well.
As a result, regulatory and compliance teams within industries exposed to fraud will likely become even more rigorous in their fraud-prevention practices to prevent their businesses from being hit by eye-watering fines. Furthermore, spend on fraud prevention will increase as fraud teams grow to keep up with sophisticated fraud attacks.
We’re already seeing increasing regulation when it comes to inclusion and fairness in AI. The UK Government Digital Identity and Attributes Trust framework (DIATF) has rules in section 13.3 that require companies to submit annual reports showing how they have prioritised inclusion – and similar initiatives are coming out of the US White House and Australian Government.
As a result of increasing regulation, pursuing Zero Bias AI will be key.
- Competition threatens the viability of business: Within the identity industry, we are likely to see a number of companies fold due to the dramatic increase in competition. We have seen significant numbers of clients moving from legacy providers to fully automated solutions using the latest technologies which are proven to be faster, more accurate, and cost efficient. Issues with lengthy post-sale implementation and poor ongoing customer service have also been driving buyers to look for better options, which will likely shake up the industry further in 2023.
More broadly, many fintechs are laying off staff. The one exception is fraud teams where 9/10 fintechs plan to hire more staff and 68% plan to increase budgets for anti-fraud technology solutions.
If fraud prevention, regulation and compliance teams don’t continuously update and upgrade their views and systems, they risk losing millions in fraudulent transactions and regulator fines. They will need to ensure the solutions they have in place are able to keep up with increasing demand without compromising user experience, and performing at a high level across the board to reduce demands on human teams that might be under-resourced and costly.