Mitigating Payment Fraud with AI-Driven Security
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As much as we would love a world without scams, we need to be prepared for them. Payment fraud is a growing challenge in our digital financial ecosystem. The rise of e-commerce, mobile payments, and fintech innovations has made online transactions more convenient but also much more susceptible to fraud. Statistics show that fraudulent transactions cost businesses over £31 billion in 2022. This number highlights the urgency for robust and adaptable security measures to protect businesses and consumers alike.
The tricky thing is that fraudsters use increasingly sophisticated tactics like phishing, social engineering, and account takeovers to exploit weaknesses in traditional security systems. Here is another interesting number: According to the European Central Bank, payment fraud across the European Economic Area amounted to €4.3 billion in 2022 and €2.0 billion in the first half of 2023, primarily from unauthorised credit card payments and credit transfers. That is why your business should brace itself and invest in security solutions that can respond to evolving fraud techniques.
Traditional fraud prevention methods, which rely on static rules, struggle to keep pace with these emerging threats. In response, businesses and financial institutions are adopting AI-driven security systems. These solutions provide real-time detection, automated responses to suspicious activity, and stronger compliance management—delivering a dynamic approach to mitigating payment fraud.
The growing threat of payment fraud
The first step to reducing your company’s risk is pretty obvious, but we need to address it. Make sure to inform yourself about what threatens your business! This article has compiled valuable information, including current dangers.
New attack vectors include authorised push payment (APP) fraud, where fraudsters deceive victims into authorising payments to fraudulent accounts. APP fraud resulted in $1.94 billion in losses in the United States in 2022 and is expected to rise to $3.03 billion by 2027.
Moreover, fraudsters exploit weaknesses in person-to-person payments, mobile wallets, and e-commerce transactions. North America alone accounted for 42 per cent of global e-commerce fraud in 2023, with total losses reaching $15.96 billion. The rise of “friendly fraud” (first-party fraud), where legitimate customers falsely dispute a transaction, further complicates the issue. This type of fraud now represents 34 per cent of global fraudulent transactions.
The consequences of payment fraud and all sorts of scams extend beyond direct financial losses. Companies face significant reputational damage, reduced customer trust, and potential regulatory penalties if they fail to protect their systems adequately. This environment calls for AI-driven solutions that can adapt to new fraud patterns and respond in real time.
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How AI-driven security helps prevent payment fraud
We at Yokoy are convinced that AI can offer your business a number of powerful fraud protection features. Let’s have a look at the most outstanding benefits:
Real-time detection
AI-driven systems provide real-time detection by continuously analysing transaction data to identify anomalies. This technology can recognise subtle inconsistencies in transaction location, time, and frequency, enabling early identification of suspicious activities.
Machine learning models
Machine learning models are central to AI-driven fraud detection systems. These models use supervised and unsupervised learning techniques to distinguish between normal and suspicious behaviours, for example, when using company cards or paying for business expenses. By learning from historical transaction data, machine learning algorithms can adapt to new fraud tactics, ensuring consistent performance and reducing false positives. This adaptability is crucial as fraud tactics evolve, making AI systems highly effective against new and complex fraud patterns.
Automation of threat response
AI-driven systems automate the response to detected threats, enabling quick intervention. When a suspicious transaction is flagged, the system can take immediate action, such as freezing the account, notifying the responsible people, or blocking the transaction altogether. This capability prevents further fraudulent activities and limits potential financial losses.
Improved customer trust
The use of AI-driven security measures can significantly improve customer trust. By investing in advanced technologies, businesses demonstrate their commitment to safeguarding user information. Furthermore, AI’s ability to reduce false positives ensures that legitimate customers experience fewer disruptions, resulting in a more secure and seamless customer experience.
Scalability
AI technology is inherently scalable, making it suitable for businesses of all sizes. Whether handling a few thousand or millions of transactions, AI systems can scale seamlessly without compromising performance or detection capabilities. This flexibility is vital if your company is undergoing rapid growth or seasonal fluctuations in transaction volumes.
Strengthening financial governance with AI-driven security
AI-driven security systems play a crucial role in reinforcing financial governance by ensuring compliance with regulatory frameworks, implementing robust fraud mitigation strategies, and providing continuous monitoring.
Financial institutions must comply with stringent regulations such as the EU’s Payment Services Directive 2 (PSD2), which mandates strong customer authentication and secure transaction handling. AI-driven systems facilitate compliance by automating the verification process, maintaining accurate records, and generating detailed reports for audits. With automation, you can minimise the risk of non-compliance as well as the associated financial and reputational consequences.
AI-based fraud mitigation strategies, including anomaly detection, risk scoring, and behavioural analytics, help identify potential fraud risks before they materialise. For example, anomaly detection algorithms can spot deviations in spending behaviour, while risk scoring models evaluate the likelihood of fraud based on various factors, such as transaction velocity and location.
AI-driven systems continuously monitor all transactions, ensuring that any suspicious activity is detected and addressed as it happens. This 24/7 surveillance helps maintain the integrity of financial operations and provides valuable insights for further enhancing security protocols.
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How Yokoy’s AI and Yokoy Pay help mitigate payment fraud
Yokoy’s AI-powered platform, Yokoy Pay, offers a comprehensive, cutting-edge tool suite to tackle payment fraud and support financial governance in combination with physical or virtual credit cards for employees. Our platform uses advanced AI and machine learning capabilities to protect against various types of fraud while ensuring efficient payment management.
AI-powered fraud detection
Yokoy Pay’s AI-driven system continuously analyses transaction data sets in real time, detecting unusual patterns or anomalies that could indicate fraudulent activities. Using sophisticated algorithms and advancements, Yokoy’s platform goes beyond simple rule-based approaches by applying contextual analysis to identify complex fraud patterns with greater precision, which helps prevent potentially fraudulent transactions before they occur.
Built-in security
Yokoy Pay includes multi-factor authentication (MFA) and biometric verification to strengthen protection, making unauthorised access highly unlikely. These security measures significantly reduce the risk of identity theft, account takeovers, and other types of malicious activities. The system’s automated alerts and notifications also ensure immediate responses to potential threats, further enhancing overall security.
Automated compliance checks
Yokoy’s platform automates compliance processes, ensuring that all transactions adhere to both internal company policies and external regulatory requirements, such as those outlined by the Payment Services Directive 2 (PSD2) and other regional regulations. This automation reduces the risk of human error, improves the accuracy of compliance reporting, and helps organisations like yours avoid costly fines associated with non-compliance.
Granular spend controls
Yokoy Pay offers granular spending controls, allowing companies to set precise rules and limits on expenses. For instance, your business can define authorised spending categories, transaction limits, and merchant restrictions, ensuring that all transactions comply with predefined individual policies. This level of control prevents misuse of funds and provides enhanced visibility over financial activities, making it easier to detect any irregularities.
Seamless integration
Yokoy Pay integrates effortlessly with existing financial systems and enterprise resource planning (ERP) software. This feature allows for a unified view of financial data across platforms. This seamless integration reduces the complexity of managing multiple systems, enhancing the efficiency of fraud detection and prevention efforts. Additionally, Yokoy’s AI-driven system is scalable and can be tailored to accommodate the specific needs of organisations of all sizes, ensuring consistent performance and protection as businesses grow.
Next steps
One thing is for sure: The growing threat of payment fraud requires businesses to adopt cybersecurity solutions driven by artificial intelligence. Thankfully, Yokoy’s AI-powered solutions offer essential tools to safeguard your company’s financial operations—and the use of smart corporate cards for business travel and other expenses further enhances your team members’ experiences with Yokoy. Would you like to experience it yourself?
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