Pilot Details

• Enhanced Payment Controls: The first pilot enhances SWIFT’s existing Payment Controls service using AI models to detect fraud more accurately by analyzing historical transaction patterns. This will be tested with live customer data.
• Data Collaboration and Federated Learning: The second pilot involves 10 leading financial institutions, including BNY Mellon, Deutsche Bank, DNB, HSBC, Intesa Sanpaolo, and Standard Bank. This experiment focuses on using AI to analyze anonymized data from various sources securely, improving global fraud detection capabilities.

Impact on the Industry

Fraud cost the financial industry USD 485 billion in 2023. The pilots aim to reduce these costs significantly and support the G20’s goal of speeding up cross-border payments.

AI has great potential to significantly reduce fraud in the financial industry. That’s an incredibly exciting prospect but one that will require strong collaboration. Swift has a unique ability to bring financial organizations together to harness the benefits of AI in the interests of the industry, and we’re excited by the potential of both of these pilots to help further strengthen the cross-border payments ecosystem.

Tom Zschach, Chief Innovation Officer at Swift

SWIFT has developed an AI governance framework ensuring accuracy, explainability, fairness, auditability, security, and privacy, aligning with global standards such as ISO 42001, the NIST AI Risk Management Framework, and the EU AI Act.

Insights from Key Figures Involved

Combatting fraud successfully will require industry collaboration, collective action, and strong leadership from operators like Swift. We’re excited to help lead the first wave of innovation in this space and look forward to seeing even more banks join the initiative.

Isabel Schmidt, Executive Platform Owner, Payments Enablement at BNY Mellon Treasury Services

Our passion for holistic payment solutions is founded on expertise, technology, and innovation; not only in terms of our own strategic product development, but importantly through our strong dedication to drive partnership and collaboration across the market. Through these industry initiatives, we have the potential to enhance our ability to detect fraud and reduce operational costs, whilst delivering a premium customer experience and contributing towards a more secure market environment.

Ole Matthiessen, Global Head of Cash Management & Head of Corporate Bank APAC, Middle East & Africa at Deutsche Bank

Building financial resiliency and strengthening risk management is a key priority for our clients and they are looking to us to help them better manage uncertainty and threat through our solutions while supporting their businesses to grow and transform. By utilising new technology and collaborating across the industry to fight fraud, we are helping protect our customers, our data and the bank.

Manish Kohli, Head of Global Payments Solutions at HSBC

Extending and strengthening the collaboration of anti-fraud experts and the exchange of data also at an international level will improve the prevention of and fight against fraud.

Enrico Canna, Head of Anti-Fraud & Customer Protection Center at Intesa Sanpaolo

Turkey experienced the highest number of attacks, with nearly 3% of users affected. Other heavily impacted regions include Afghanistan, Turkmenistan, and Tajikistan.

Key Malware Trends

• Bian.h Trojan: This was the most prevalent banking Trojan, responsible for 22% of all Android attacks.
• Agent Malware: Dominated Android malware, comprising 38% of attacks

While mobile threats rose, financial PC malware incidents decreased by 11%. The main culprits were Ramnit and Zbot, targeting over 50% of affected users.

Financial phishing accounted for 27.32% of attacks on corporate users and 30.68% on home users. Online shopping brands were the most common lure, making up 41.65% of attempts, with PayPal phishing representing 54.78% of pages targeting electronic payment system users.

In crypto land, cryptocurrency-related phishing saw a 16% increase, with 5.84 million detections in 2023 compared to 5.04 million in 2022.

Money has always been a magnet for cybercriminals, and a substantial portion of malware attacks are financially motivated. The surge in mobile malware witnessed last year highlights a concerning trend in cybercrime. With the emergence of new and aggressive malware strains, attackers are evolving their tactics to target mobile devices more aggressively. This underscores the imperative for individuals and businesses to maintain heightened vigilance, update protective measures, and fortify device security accordingly.

Igor Golovin, a security expert at Kaspersky

To mitigate these threats, Kaspersky recommends:

• Regularly updating apps and operating systems.
• Downloading apps only from trusted sources.
• Using robust security software.
• Staying informed about the latest security threats.

As mobile banking continues to grow, so do the threats. Users and financial institutions must remain vigilant and adopt thorough security measures to safeguard against these evolving dangers.

This method results in substantial operational costs and significant annual fraud losses, totaling approximately $1.1 billion globally. The introduction of the VAAI Score mitigates these impacts by providing real-time risk assessments that help prevent fraudulent transactions.

Key Features and Benefits of the VAAI Score

The VAAI Score offers several groundbreaking features:

• Real-Time Risk Scoring: The system can assign risk scores to transactions in just 20 milliseconds, enabling immediate response to potential threats.
• Reduction in False Positives: Visa has optimized the VAAI Score to reduce false positives by 85%, focusing specifically on signals unique to enumeration attacks for more accurate detection.
• Training and Features: The model is trained on more than 15 billion VisaNet transactions and incorporates six times the number of features compared to previous models, enhancing its ability to scrutinize suspicious transactions effectively.: 

Enumeration can have lasting impacts on our clients and there’s an immediate need for tools that can better detect and prevent these attacks in real-time. With the VAAI Score, our clients now have access to real-time risk scoring that can help detect the likelihood of an enumeration attack so issuers can make more informed decisions on when to block a transaction.

Paul Fabara, Chief Risk and Client Services Officer at Visa

Michael Jabbara, SVP Global Head of Fraud Services at Visa, also highlighted the advanced technology’s role in safeguarding digital finance: 

With access to advanced technology, fraudsters are monetizing stolen credentials faster than ever before. Enumerated transactions impact the entire ecosystem, and with the VAAI Score, we’re giving our clients a sophisticated tool that can help prevent cardholder accounts from being compromised and stop fraudulent transactions before they happen.

AI: The Double-Edged Sword

Interestingly, while fraudsters are using AI to enhance their scams, it is also recognized as a critical ally in combating fraud. 

AI is increasingly being used as a ‘force-multiplier’ by fraudsters.

The Payments Association emphasizes the need for the industry to leverage AI more effectively in fraud prevention efforts. The association further observes that more than half (57%) of survey respondents believe AI will be the “next game-changer” in the fraud prevention space, indicating a strong faith in technology’s potential to safeguard financial transactions.

Responses and New Measures

The response to the rising tide of fintech fraud involves a blend of technological innovation, regulatory adjustments, and industry collaboration. 

For instance, the UK’s recent legislative amendment allowing banks to delay payments suspected of fraud represents a proactive step towards mitigating APP fraud risks. Riccardo Tordera, head of policy and government relations at The Payments Association, elaborates on the nuanced role of AI in fraud prevention:

We have known for years that machine learning is the only thing with the sophistication and the capacity to tackle increasing volumes of fraud, but it’s not a simple case of installing an AI solution and watching it clean up fraud on your system.

As fintech companies brace for the impact of APP fraud, the emphasis on AI and regulatory innovation reflects the industry’s commitment to proactive and adaptive fraud prevention measures. 

The survey results show that our focus on APP fraud as a major vector of losses for both business and the general public was correct.

Tony Craddock, director general of The Payments Association

The research underscores the pivotal role of AI in modernizing AML systems. By serving as an assistive co-pilot to AML analysts, AI technologies are making substantial strides in minimizing the occurrence of false positives, thereby streamlining the risk assessment process. This AI-assisted approach is anticipated to remain popular, given ongoing regulatory concerns about the transparency of fully automated decisions made by AI.

Expanding AML Efforts Beyond Financial Sectors

Juniper Research also notes that AML system providers are broadening their horizons, venturing beyond traditional financial markets to serve industries like legal, real estate, and non-profits. By 2028, expenditure on AML systems in these sectors is projected to hit $6.3 billion globally, representing a 170% increase from 2024. This expansion necessitates AML vendors to customize their offerings and forge partnerships tailored to these emerging markets.

The study advises AML system providers to extend their collaboration with data providers to encompass various sectors, including gambling and professional services. Such strategic partnerships would empower compliance teams across a wider array of markets to efficiently identify and mitigate high-risk transactions or customer relationships, thereby curbing the impact of financial crime.

Juniper Research’s analysis of the AML systems market offers insights into over 26,720 data points across 60 countries over five years, providing research into the current and future landscape of AML technologies.