With the acceleration of artificial intelligence (AI) tools, it’s becoming easier for fraudsters to evolve their tactics and exploit businesses in ways that their online security systems may not be fully equipped to handle.
AI technology is not inherently bad, and there are plenty of positive applications of AI in the business world. However, the distinction between good AI and bad AI when it comes to cybersecurity is a growing concern for business leaders.
Below, we’ll go over the rapid growth of AI, the risk this poses to businesses’ online security, and how they can combat AI-based identity fraud threats as this technology advances.
The Rapid Growth of Artificial Intelligence Technologies
Artificial intelligence is still in the early stages of development, though it is already revolutionizing how we do business–for better or worse.
New Bloomberg data shows that the generative AI market could have a value of $1.3 trillion by 2032, growing at a compound annual growth rate of 42% from 2022 to 2032!
On the positive side, this technology allows companies to process large volumes of data for more informed decision-making, automate repetitive tasks that human workers don’t enjoy or have the time for, and generate cost savings as organizations rely less on manual labor to complete critical tasks.
Growing Risk of AI-Based Fraud
Despite the impressive efficiency boost that AI can provide, it also offers an entirely new toolkit for cybercriminals to launch their attacks. Just as much as legitimate organizations can leverage AI to accelerate their business, so too can online fraudsters.
Common tactics like social engineering, synthetic identity fraud, deep fake spoofs, and others are becoming easier for attackers to employ with the help of AI technology.
For instance, in the case of synthetic identity fraud, AI algorithms can help fraudsters generate realistic synthetic identities by analyzing large amounts of data from public records, social media, and other sources so they can take out loans or open up credit cards with the intention of defrauding the issuing institution. AI has also helped bad actors to create high-quality synthetic identity documents both cheaply and easily.
Similarly, AI-powered deep fake technology makes it easier for attackers to impersonate users and commit identity fraud by replicating their voices or faces to deceive and exploit organizations. Just earlier this year, CNN reported on a case where a finance professional working at a multinational firm was deceived by a deep fake video of the company’s CFO, ultimately being duped into paying out $25 million to the fraudster.
Overall, AI algorithms can help automate fraudulent activities such as account takeovers, credential stuffing, or other approaches, increasing the scale and speed of attacks. In turn, it becomes more difficult to detect and, ultimately, prevent fraudulent activities.
How Regulations Could Impact AI-Based Identity Fraud
The explosive growth of AI-based identity fraud has not gone unnoticed by governments worldwide. Countries are taking a hard look at how to implement legislation and policies to balance both innovation and risks, including AI-based identity fraud.
Countries including Canada, China, the European Union (EU), Japan, Korea, Singapore, the United Kingdom (UK) and the United States (US) are in various states of the legislative process regarding Artificial Intelligence.
The European AI Act, on the verge of being passed in the EU, is the first comprehensive AI law in the world. It would take effect in 2026. The Act would “regulate different uses of AI based on risk” and prohibit a variety of use cases, punishable by high fines. Additionally, the Act would apply to US companies who do business in the EU, similarly to GDPR regulations.
Also, India announced plans to address tools like ChatGPT, while the Biden administration issued an Executive Order in 2023 to establish standards for AI safety and security while protecting privacy and civil rights.
As identity fraud continues to evolve with the help of AI, these regulations may impact both the development and the adoption of fraud.
How You Can Combat Artificial Intelligence-Powered Fraud
Though the rate of development of artificial intelligence will not slow down any time soon, you are not entirely defenseless against the ramp-up of AI-based cybersecurity attacks and identity fraud attempts. We will now discuss some of the ways you can combat this type of fraud.
AI and Machine Learning Powered Fraud Detection Systems
Businesses can leverage AI and machine learning (ML) technology to their advantage by implementing advanced fraud detection systems. Even though the capabilities of AI technology make it effective at deploying attacks, it can also be used to detect when fraudulent activity is underway.
Specifically with the help of behavioral analytics, organizations can rely on AI systems to continuously analyze user behavior, detect anomalous activity, and flag it for further review as a possible fraud attempt. Red flags might include multiple failed login attempts, large transactions, or atypical login locations, among others.
Liveness Detection
To help reinforce the security of biometric verification in the age of AI, liveness detection tests can ensure that users are only granted access to a system if they are live and present when a biometric sample is provided.
In theory, this means that a fraudster would not be able to bypass security by presenting a video or image of the user’s face, fingerprint, or other biometric marker. A combination of liveness detection techniques like 3D depth sensing, texture analysis, and motion analysis work together to determine if the user attempting the login is a live human being, and not a spoof or impersonation.
Employee Education and Training
Employees play an important role in an organization’s ability to detect and prevent AI-based identity fraud. From the above example from CNN, a specific employee was targeted by fraudsters with their deep fake attack, whose unfamiliarity with such threats played to their advantage.
For this reason, you need to educate employees about common fraud tactics and how to recognize and report suspicious activity. Provide training on best practices for safeguarding sensitive information and avoiding social engineering attacks. Further, make sure you have protocols in place for escalating suspected fraud attempts through the proper channels so the threat can be promptly investigated.
Human Oversight
Lastly, you can pair your AI and ML-powered fraud detection systems with human oversight to create a multi-layered approach to combating fraud. When there is a suspected fraud attempt, have someone on your team who can review the incident further based on the provided context and their professional experience.
Though AI and ML systems are highly effective at processing large amounts of data quickly and accurately, there is still a need for skilled professionals to review the details and investigate the incident before they can come to a conclusion about how to best proceed.
Concluding Thoughts on Fighting AI-Based Identity Fraud
The AI field is still in its infancy stage, so businesses will need to be agile and adaptable as the landscape evolves over the coming years and AI-based identity fraud threats become even more sophisticated.
Creating a robust defense against AI-powered identity fraud does not happen overnight. However, it’s a necessary process that businesses must engage in to protect sensitive customer data from a costly breach and avoid the reputational damage and financial losses that can come from such incidents.