How does AI work in fraud detection?

ARTIFICIAL intelligence (AI) in fraud detection means using a group of algorithms that monitor incoming data and stop fraud threats before they materialise.

AI learns with historical data and can adjust its rules to stop threats it may never have seen before - something standard fraud software cannot do.

Because AI is dynamic, it also continuously works to reduce the number of false positives (genuine users being blocked) by improving the accuracy of its rules.

It does all this at such speeds that it does not impact the user experience.

The best AI cybersecurity solutions are so lightweight that they will not impact the performance of your website or mobile app either. Common Types of fraud AI can detect Card fraud

Fraudsters do not crack cards manually. They use bots to do the dirty work for them, often via a brute force attack that can severely strain payment gateways. Card fraud is an extremely common type of fraud, with forecasters predicting the global value of fraudulent transactions to increase to US$38.5 billion in 2027 from US$32.04 billion in 2021.

AI can detect this type of fraud because it does not solely rely on IPs and IP reputation to stop incoming threats. AI monitors user behaviour to distinguish bots from people and block malicious bots. In the rare case of uncertainty, it presents the user with a CAPTCHA. Fake account creation

Ever wondered why social media has so many trolls, bots, and fake accounts?

Automated bots can create fake accounts at incredible speeds. Fake account creation gives fraudsters the ability to skew your product reviews, distribute false info, spread malware, ruin your analytics, and worse.

When it comes to account creation, you usually cannot increase standard security without increasing user friction for creating a new account. With AI you can, because it can track many variables to block bad bots while letting through genuine users, all without changing the account creation process. Account Takeover (ATO)

A close relative of fake account creation, account takeovers are automated threats where fraudsters compromise the accounts of real users.

The difficulty with ATOs is that they are not always immediately visible. These attacks are usually discreet, which is why they are dangerous. Multi-factor authentication works against ATOs, but many users will not toggle it.

AI traces all the hints bots drop when they are about to take over an account and is an unobtrusive way to stop ATOs.

Credential stuffing

Credential stuffing is an automated threat where a bot tries to input (“stuff ”) common usernames and passwords into your login page. Sometimes, these usernames and passwords will be partially sourced from previous data breaches. Combined with simple or reused passwords, chances are good that fraudsters can gain access to a surprisingly high number of user accounts.

Not only can this crash your login page, but it also leads to ATOs and carding. AI tracks changes in website traffic, a higher-than-usual login failure rate, and other variables to determine if you are under a credential stuffing attack.

Benefits of using AI in fraud detection Real-time detection

The best AI processes incoming data and blocks new threats in milliseconds. It provides excellent security both because of how dynamic it is and also because of its speed. Grows better over time

The more data you feed the AI, the better its predictions. AI only ever gets better over time, particularly if instances of an AI share knowledge with each other.

Less time being reactive

Your employees will spend less time investigating threats and reviewing information because of AI for fraud detection. They will have more time for projects that will push your business forward.

Risks of using AI fraud detection Social fraud is still a risk

Automated threats are not the only threats to your company. Phishing, social engineering, and other types of social fraud are hard to combat with AI because such threats are not automated—and it only takes one employee falling for this type of fraud to compromise the whole company. You will still need to educate your team to fight these risks.

Black box

Because the AI parses so much data, it can be hard to understand how it actually works. This is particularly true if AI is combined with machine learning and neural networks that simulate a human brain. Still, the best fraud detection software solutions will give you plenty of control to customise its rules as you please

False positives. While the best AI for fraud detection software will reduce false positives to a tiny number, it is impossible to eliminate entirely. AI will occasionally block some genuine users, particularly those who use uncommon browsers and VPNs.– datadome.com