How treasury departments and their banking partners can use AI to fight fraud

Fraud is on the rise in the payments sector as criminals become more adept at extracting money from their victims. But artificial intelligence (AI) has emerged as a powerful tool in payment fraud detection. Thanks to their pivotal position in the payments ecosystem, banks, with the aid of AI, are set to play a crucial role in helping clients combat fraud.

The significance of payments fraud

Payments fraud has reached alarming levels, posing a significant threat to organizations across various industries. According to the 2024 AFP Payments Fraud and Control Survey Report, a staggering 80% of companies experienced attempted or actual payments fraud in 2023, a substantial increase from 65% in the previous year. This alarming trend underscores the urgent need for more robust fraud prevention measures.

Despite the digital transformation of financial transactions, check fraud remains a persistent problem. The AFP survey found that 65% of organizations reported this form of financial crime. The impact is severe, with nearly 40% of fraud victims recouping less than 10% of stolen funds. This emphasizes the critical need for proactive fraud prevention rather than reactive measures.

The shift toward faster payment rails has inadvertently made fraud easier to perpetrate due to the irrevocable nature of these transactions. Additionally, the proliferation of digital processing and communication channels has increased the likelihood of payment fraud, with business email compromise (BEC) scams and account hijacking of banking portals emerging as significant concerns.

The emergence of AI fraud and fraud detection

While organizations already face considerable challenges in detecting traditional fraud, the advent of AI introduces an entirely new layer of deception. Deloitte estimates that U.S. banking losses from fraud could increase from $12.3 billion in 2023 to $40 billion by 2027, largely due to the advancement of generative AI technologies.

While AI poses increased threats of financial crime, the technology has equal potential to combat such crimes. The U.S. Treasury's Office of Payment Integrity (OPI) initiative stands out as a prime example, having successfully recovered over $375 million in potentially fraudulent payments through AI-driven analytics and pattern recognition in 2023.

Corporate treasury departments have a significant role in employing AI in fraud detection. AI can be particularly effective in pattern detection and predictive analytics, allowing treasury departments to identify potential fraud before it occurs. However, the effectiveness of AI in fraud detection is heavily dependent on the availability and quality of data, which can be a challenge for many corporate treasury departments.

Banks are uniquely positioned to use AI in fraud detection due to their central role in the payment ecosystem and access to vast amounts of historical transaction data. By analyzing patterns in anomalous deposits or withdrawals and fraudulent activities across multiple accounts and customers, banks can develop sophisticated models to identify potential fraud in real time.

Moreover, banks can use AI to mine and analyze large, diverse unstructured document sets that support other processes such as onboarding authorized signatories for money movement channels. This can help to identify red flags that might indicate potential fraud attempts. AI can also protect banking clients from bogus vendor deepfake calls offering fraudulent bank account information for payments. It could screen these calls and use that information to validate accounts and spot fraudulent patterns of behavior.

No wonder, then, that AI-based fraud detection in banking is on the rise. American Banker's 2024 research found that 62% of banks expect AI to play a large role in their payment fraud detection and mitigation efforts.

AI applications beyond fraud

While payment fraud detection and prevention are critical applications of AI in banking, the technology's potential extends far beyond this single use case. Banks can leverage AI to improve various aspects of their operations and enhance the services they offer to business clients.

Assistance with routine inquiries

One of AI's most promising applications is providing bank customers with self-service access to knowledge bases and support documents. AI-powered chatbots and virtual assistants can offer 24/7 support for routine inquiries, significantly improving customer experience while reducing the workload on human customer service representatives.

Credit analysis

AI streamlines the process of evaluating business customers' creditworthiness for loans. Analyzing data, including transaction history and market trends, provides quick and accurate credit assessments. This not only speeds up the loan approval process but also potentially reduces the risk of default by identifying high-risk applicants more effectively.

Automating routine manual work

One of the most immediate benefits of AI implementation is its ability to handle time-consuming but low-value tasks. AI-driven systems can automate processes such as converting paper records to digital formats, flagging discrepancies and generating routine reports. This automation not only speeds up these processes for both banks and their clients' treasury departments but also reduces the likelihood of human error, improving overall accuracy and efficiency.

One particularly promising application for AI is account reconciliation. The technology can use data extracted from multiple departmental and accounting sources, matching it against bank statements and the general ledger to automatically reconcile transactions. This not only reduces cumbersome manual work but also enables more frequent reconciliation to help monitor transactions and spot any emerging problems.

Cash forecasting

AI-powered analytics is a powerful tool for corporate treasurers in identifying and predicting the flow of funds. It can extract trends from historical data and current market information to accurately forecast cash flows months in advance, empowering executives to make more informed decisions about cash management and investment strategies. AI can also conduct 'what-if' analyses, enabling employees to predict the outcomes of different actions.

Envisioning an AI-powered future

AI is poised to become a powerful tool in the fight against payments fraud, offering opportunities for banks to enhance various aspects of their operations and services. As banks develop AI systems to help clients combat fraud, they will inevitably identify and tackle other use cases that can strengthen their partnerships with clients.

However, as we embrace these technological advancements, it's crucial to remember the ethical implications of AI. Banks should develop ethical initiatives to ensure the responsible use of what will become an increasingly important and powerful technology. This includes addressing concerns about data privacy, algorithmic bias, and the potential for AI systems to be manipulated.

The integration of AI into banking and treasury operations represents a significant opportunity to enhance fraud prevention, improve operational efficiency, and deliver better services to clients. Its success will become a key differentiator in the competitive landscape of financial services. Banks and treasury departments that embrace this technology early and responsibly will be well-positioned to thrive in an increasingly digital and data-driven future.

To learn more about how U.S. Bank can help secure your financial operations, schedule a meeting with our experts.