Automated Fraud Detection Software Development: Key Benefits, Use Cases, and Best Practices for Tech Leaders in the Financial Sector

Summary

• Global online payment fraud losses expected to exceed $48 billion, prioritizing fraud prevention is essential.
• AI, machine learning, real-time data processing, and biometrics enhance detection accuracy and efficiency. 
• Challenges include managing false positives, integrating with existing systems, and ensuring compliance with privacy regulations like GDPR. 
• Real-world examples from Barclays, J.P. Morgan, and Revolut showcase successful implementations, such as an 86% reduction in order declines for an online booking service using J.P. Morgan’s fraud tools.
• Future trends: predictive analytics, adaptive learning, and increased collaboration across financial institutions to share fraud data, enabling proactive risk mitigation.

Automated fraud detection solutions can do more than just reduce cyberattack losses—they help protect brand reputation and customer trust, which is very important given that 94% of customers hold businesses accountable for safeguarding their data. With global losses from online payment fraud expected to exceed $48 billion this year, businesses need to prioritize fraud prevention as part of their core strategy to combat a 354% rise in account takeover attacks.

Both external and internal bad actors are constantly seeking ways to exploit banks and financial services companies through various methods of fraud. With millions of users and transactions to monitor, the task of identifying fraudulent activities becomes labor-intensive and prone to human error.

To mitigate these risks and enhance their capacity to detect fraudulent operations, banks, financial services companies, and fintechs have embraced automation. 

Automated fraud detection software is now capable of analyzing vast amounts of data in real time, flagging suspicious activities and allowing financial institutions to scale without the need for additional personnel. These systems efficiently assess transactions for potential risk, with more complex or ambiguous cases being escalated for manual review by trained employees.

As with any automated solution, it’s important to remember that these systems are not entirely autonomous. Human oversight is essential to address potential inaccuracies or "hallucinations" in the software’s decision-making process, ensuring that fraud detection remains both efficient and accurate.

What is an Automated Fraud Detection Solution?

An Automated Fraud Detection Solution is a technology-driven system designed to detect, monitor, and prevent fraudulent activities in real-time. 

Fraud in the financial sector is becoming increasingly sophisticated—from phishing internal staff or clients to committing credit card fraud, there are numerous ways bad actors can steal funds from banks and financial services companies.

As a key part of a financial company’s operations, fraud detection and prevention have also evolved.

Before diving deeper into what it takes to create and maintain a fraud detection system, let’s explore its key components.

Key Components of an Automated Fraud Detection Solution

An automated fraud detection solution comprises several key components that work together to provide a comprehensive and efficient system for identifying and preventing fraud – all in real time and with minimal disruptions to legitimate transactions. 

Source: https://www.sciencedirect.com/science/article/pii/S1319157822004062

Here’s a closer look at the elements that make up such a system:

Data Collection and Integration

A robust fraud detection solution relies heavily on aggregating data from multiple sources. This data provides the foundation for identifying potential fraud. Sources can include:

• Financial Transactions: Every payment, transfer, and transaction conducted by users is analyzed for signs of fraud. This includes factors like transaction size, frequency, and location.
• User Profiles and Behavior: The system tracks individual user behaviors, such as login times, devices used, geographic locations, and purchase patterns. These insights help establish a baseline of "normal" behavior for each user.
• External Sources: Other sources include data aggregators who share signals of fraud for better network effects. If a certain IP address was identified in a fraudulent activity across two companies, this information can be used for many others. Combining data from various systems enables the solution to build a comprehensive and dynamic profile of both users and transactions, which can then be analyzed for potential fraud indicators.

Anomaly Detection

Once data is collected, the system uses anomaly detection techniques to identify behaviors and transactions that deviate from established norms. Anomalies could include:

• Unusual Spending Patterns: If a user normally makes small purchases but suddenly initiates a large or unusual transaction, this could signal fraud.
• Unexpected Geolocations: Logging in from a location far removed from the user’s typical region or conducting transactions from multiple geographic areas within a short timeframe could indicate an account takeover.
• Unusual Device Usage: Accessing accounts from unfamiliar devices or making transactions using new payment methods may also trigger an alert.

Anomaly detection algorithms analyze these behaviors in real-time, flagging anything that appears inconsistent with normal user activity for further investigation.

Machine Learning & AI

Machine learning (ML) and artificial intelligence (AI) are central to improving the effectiveness of fraud detection over time. These technologies are applied in several ways:

• Pattern Recognition: ML models are trained on historical data to recognize patterns associated with both legitimate and fraudulent activities. The more data the system processes, the better it becomes at identifying fraudulent behavior.
• Adaptive Learning: As new fraud tactics emerge, ML algorithms learn from these events, updating the model to improve future detection.
• Reducing False Positives: One of the main challenges in fraud detection is minimizing false positives—legitimate transactions flagged as fraudulent. ML models play an important role in refining detection accuracy by better distinguishing between normal activities and actual fraud.

Risk Scoring & Decision Engines

Automated fraud detection solutions assign risk scores to each transaction or event based on the data and patterns identified. These scores help prioritize which activities require immediate attention. 

Key features of risk scoring include:

• Event-Based Risk Scoring: Every transaction or action is analyzed and given a risk score based on factors such as transaction value, user behavior, and historical data. Higher risk scores indicate a higher likelihood of fraud.
• Threshold-Based Decisions: The system uses predefined thresholds to determine the appropriate response. For instance, a transaction with a risk score above a certain level might be automatically blocked, while lower scores might trigger a manual review.
• Dynamic Adjustment: The risk scoring engine continuously adjusts scores as new data comes in, ensuring that decisions are based on the most current information available.

We have a component that accurately identifies fraud and minimizes false positives. Now, the software must act or notify the affected client, which brings us to the next component of the solution.

Real-Time Alerts & Actions

A key strength of automated fraud detection solutions is their ability to act in real-time, ensuring that fraudulent activities are stopped before they can cause harm. Some of the key features include:

• Instant Notifications: When suspicious activities are detected, the system immediately sends alerts to both the financial institution and the customer. This allows for rapid responses, such as verifying the transaction with the user.
• Blocking Suspicious Transactions: High-risk transactions can be automatically blocked to prevent unauthorized transfers or purchases from being completed.
• Freezing Accounts: In cases of suspected account takeovers or significant fraud risk, the system may temporarily freeze a user’s account until the issue is resolved.

Although these aren’t all the measures such software can include, they represent a basic set of actions the system should be able to perform. Today, with the variety of fraud types targeting financial institutions, solutions must be continuously reassessed and updated to stay one step ahead of bad actors.

Common Types of Fraud Detected

Fraud can take many forms, and an automated fraud detection solution must be equipped to handle a wide variety of tactics used by fraudsters. Below, we’ll explore the most common types of fraud in detail, while briefly highlighting others that automated systems can detect.

Credit Card Fraud

Credit card fraud is one of the most prevalent types of financial fraud. This occurs when someone uses a stolen or cloned credit card to make unauthorized purchases or withdraw funds. 

Detection: To effectively detect credit card fraud, the system monitors real-time transactions, analyzing user spending patterns and geographical data. If there are sudden, high-value purchases or activity in unfamiliar locations, the system flags the transaction for review and can block it automatically if needed.

Source: https://risk.lexisnexis.com/insights-resources/research/us-ca-true-cost-of-fraud-study#financialservices

Phishing

Phishing attacks trick individuals into sharing sensitive information, such as login credentials or credit card numbers, through fake websites or emails. 

Detection: Fraud detection systems track unusual login patterns, including sudden access from new devices or locations, and monitor suspicious email activity. If inconsistencies are detected, the system may prompt additional security checks or alert the user.

Account Takeover

In an account takeover, fraudsters use stolen credentials to access and control a user’s account, often leading to unauthorized transactions. 

Detection: Behavioral analytics play a key role here, as automated systems monitor login behavior, device changes, and unusual transaction patterns. Alerts are triggered when activity deviates from the user’s normal behavior, allowing the system to block transactions or freeze the account.

Other Types of Fraud

While credit card fraud, phishing, and account takeover are some of the most common types of fraud targeted by automated systems, there are many other forms of fraud that these solutions can help detect. 

Here’s a brief overview of these:

• Check and Cheque Fraud: These involve the use of fake or altered checks to withdraw money. Detection relies on analyzing check authenticity, comparing signatures, and identifying discrepancies in transaction histories.
• Identity Theft: Fraudsters use stolen personal information to open new accounts or make purchases. Detection focuses on verifying identities and monitoring user activity for unusual behavior, such as login attempts from unexpected locations or changes in personal information.
• Loan Fraud: False information is provided to secure loans that will not be repaid. Detection tools verify applicant details, analyze past application patterns, and flag suspicious data inconsistencies.
• Wire Fraud: Unauthorized transfers of funds are flagged based on irregular transfer requests, unexpected recipients, or abnormal transaction amounts. Systems must monitor wire transfers for unusual patterns that signal potential fraud.
• Payment Fraud: Unauthorized use of payment systems is monitored in real-time, with systems detecting multiple payments to unfamiliar merchants, unusual payment amounts, or sudden changes in spending behavior.
• Social Engineering: Manipulation tactics are used to trick individuals into authorizing transactions. Fraud detection tools track unusual authorization patterns, especially for large or irregular payments.
• Authorized Push Payments (APP) Fraud: In this type of fraud, victims are tricked into sending money to fraudsters. Detection relies on monitoring for unusual payment behaviors, verifying the legitimacy of recipient accounts, and flagging unusual transactions.
• Skimming: Information is stolen from cardholders using devices attached to ATMs or POS terminals. The system detects this by flagging unusual usage patterns or identifying transactions from unlikely locations.
• Application Fraud: Fraudulent applications for credit cards, loans, or other services are submitted using false information. Fraud detection systems verify identity data and flag inconsistent or suspicious application details.
• SIM Swap Fraud: Fraudsters take control of a victim’s phone number to intercept two-factor authentication codes. The system monitors requests for SIM changes and tracks account access for unusual behavior.
• CEO Fraud & Money Transfer Scams: Fraudsters impersonate high-ranking officials or use email compromises to authorize fake transfers. Systems monitor for unexpected transfer requests, especially large amounts, and cross-check with regular communication patterns.
• Money Mules and Advance Fee Fraud: In these schemes, fraudsters recruit intermediaries to transfer stolen funds, or ask for upfront payments with promises of returns. Automated systems flag accounts with unusual transaction patterns or frequent transfers to unfamiliar recipients.

Key Technologies Powering Automated Fraud Detection

Automated fraud detection solutions rely on several advanced technologies to ensure they can efficiently detect and prevent fraud in real-time. These technologies enable systems to learn from past data, recognize new patterns, and respond to threats immediately. 

Below are the key technologies driving the success of modern fraud detection systems.    

Biometrics

Biometrics offers an additional layer of security in fraud detection by verifying users based on unique physical or behavioral characteristics. This technology has become increasingly popular in preventing fraud in areas like banking, payments, and account access (preventing account takeovers). The key biometric technologies include:

• Voice Recognition: Voice biometrics can analyze a user’s voice patterns during phone-based transactions or customer service calls. By comparing these patterns to a previously stored voiceprint, the system can authenticate the user and detect impersonation attempts.
• Fingerprint Recognition: Many devices now incorporate fingerprint recognition for secure logins and transactions. Fraud detection systems can use this biometric data to ensure that the person initiating a transaction is the authorized user.
• Facial Recognition: In some cases, facial recognition is used to authenticate users during sensitive transactions or account logins. By matching a user’s face to a stored image, the system can verify their identity and prevent unauthorized access.

Biometrics enhances fraud detection by providing strong, individualized security measures that are difficult for fraudsters to replicate. It’s a powerful complement to other technologies like behavioral analytics and machine learning, adding another barrier to fraud.

Artificial Intelligence (AI) & Machine Learning (ML)

Artificial intelligence and machine learning form the backbone of automated fraud detection systems. These technologies enable the detection of fraud in increasingly sophisticated scenarios. 

Source: https://www.sciencedirect.com/science/article/pii/S1319157822004062

Key elements include:

• Supervised Learning: In supervised learning, models are trained on labeled datasets that contain examples of both legitimate and fraudulent transactions. This allows the system to recognize known patterns of fraud and apply this knowledge to new data. For example, if certain types of transactions have historically been flagged as fraudulent, the system can detect and block similar transactions in the future.
• Unsupervised Learning: Unsupervised learning models don’t rely on labeled data. Instead, they identify patterns and anomalies without prior knowledge of what constitutes fraud. This is especially valuable for detecting novel fraud patterns that haven’t been seen before. By spotting outliers and unusual behavior, unsupervised learning helps fraud detection systems stay ahead of emerging threats.
• Continuous Learning: Machine learning models are constantly updated as they process new data, improving their ability to identify fraud with fewer false positives and false negatives over time.

Behavioral Analytics

Behavioral analytics plays an important role in fraud detection by monitoring and analyzing user behavior to help identify what’s normal and what might be suspicious. 

This technology works by looking for patterns and behaviors that can differentiate between legitimate actions and potential threats.

Here are some relevant aspects of this technology:

• User Behavior Profiling: Each user’s typical behavior—such as login times, transaction patterns, geographic locations, and device usage—is tracked to establish a baseline of normal activity. For example, a user might always log in from a specific device in the same location. If a login attempt suddenly comes from a different location or device, the system can flag it as suspicious.
• Anomaly Detection: By comparing real-time behavior with established patterns, behavioral analytics can quickly identify deviations that could indicate fraud. For instance, if a user suddenly makes high-value purchases at unusual times, this could trigger a fraud alert.

Monitoring detailed behavior patterns helps this technology enhance accuracy, minimizing false positives and ensuring legitimate users can conduct transactions smoothly while maintaining robust fraud protection. 

As behavioral analytics improves precision, big data and cloud computing play an essential role in powering fraud detection systems, particularly in ensuring scalability and efficiency

Big Data and Cloud Computing

The enormous volume of data generated by modern financial systems requires powerful tools to collect, store, and analyze that data. Big data and cloud computing is making this possible:

• Big Data: Automated fraud detection systems must analyze vast amounts of data, including transaction records, user activity logs, location data, and more. Big data technologies allow the system to process and analyze this data at scale, enabling faster detection and more accurate predictions.
• Cloud Computing: Cloud infrastructure enables fraud detection systems to handle the massive computational and storage demands required for real-time analysis. The flexibility of cloud platforms allows businesses to scale their fraud detection capabilities according to demand, ensuring they can process large amounts of data quickly and efficiently without investing heavily in on-premises infrastructure.

Together, big data and cloud computing provide the foundation for fraud detection systems to operate in real-time, ensuring fraud attempts are detected and blocked before they can cause harm.

Challenges in Implementing Automated Fraud Detection

Automated fraud detection systems offer strong defenses against financial crimes but putting them in place isn’t always straightforward. Businesses face a range of challenges, from ensuring smooth integration to keeping up with constantly changing fraud tactics. It’s important to understand and address these obstacles early on to get the most out of your fraud detection solution while maintaining regulatory compliance and minimizing disruption.

False Positives

A common challenge in fraud detection is managing false positives—legitimate transactions that are mistakenly flagged as fraudulent. While it's important to detect fraud effectively, incorrectly blocking valid transactions can harm the customer experience and lead to lost revenue for businesses.

• Impact on Customer Experience: False positives can cause legitimate customers to experience transaction declines or account freezes, leading to frustration and a potential loss of trust in the financial institution. When developing and implementing an automated fraud detection solution, it's essential to work closely with your financial technology partner to ensure that false positives are minimized through proper fine-tuning and effective data ingestion. Additionally, consider incorporating functionality that allows customers to quickly reactivate their accounts using biometrics or other secure contingency measures, enabling them to regain access to their funds in the event of a false positive block.
• Optimizing Detection Models: Fine-tuning the system’s algorithms and machine learning models to strike the right balance between catching fraudulent transactions and avoiding false positives can be complex. Systems need to continuously adapt to maintain this balance, using both historical data and real-time feedback to improve accuracy over time.

Source: https://www.ravelin.com/blog/reduce-false-positives-fraud

Managing false positives requires a combination of advanced technology and careful calibration to ensure fraud detection doesn’t inadvertently disrupt legitimate activity.

However, there's always a risk that new fraud tactics may emerge, which your existing data may not cover, potentially allowing malicious parties to execute their schemes.

Data Privacy and Security

One of the biggest challenges in implementing automated fraud detection systems is ensuring compliance with data privacy regulations. These systems rely on collecting and analyzing large amounts of personal and financial data, so protecting user privacy and maintaining strong security is crucial.

Balancing Fraud Detection with Privacy: Fraud detection systems must walk a fine line between thorough data analysis and strict privacy laws like the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA) in the United States. These regulations limit how personal data can be collected, processed, and stored, which means systems need to be carefully designed to stay compliant.

Data Security: Given the sensitive nature of the data used in fraud detection, businesses need to implement strong security measures such as encryption, access controls, and data anonymization to prevent unauthorized access and data breaches. The stakes are high, and securing this data is not optional—it's vital to keeping user trust intact.

Respecting the EU AI Act: In addition to privacy laws, AI-based fraud detection systems in Europe must now also adhere to the EU AI Act. This legislation introduces new requirements for AI systems, focusing on transparency, fairness, and risk management. AI-driven fraud detection tools must be explainable, meaning businesses need to ensure their AI models are understandable and can provide clear reasons for flagging suspicious activities. 

Evolving Fraud Tactics

Fraudsters are constantly developing new tactics to bypass detection systems, which makes keeping up with evolving fraud techniques a major challenge. As soon as a system learns to detect one type of fraud, fraudsters often find ways to exploit new vulnerabilities.

• Adaptation and Learning: Fraud detection systems must be capable of adapting quickly to emerging threats. Machine learning plays a key role here, as models can be continuously retrained on new data to recognize novel fraud patterns. However, this requires ongoing maintenance and updates to ensure the system remains effective in the face of new fraud tactics.
• Staying Ahead of Fraud: To remain proactive, businesses must invest in updating and refining their fraud detection strategies, incorporating threat intelligence and monitoring fraud trends across industries. 

Fraud detection solutions that fail to keep up with evolving techniques risk becoming obsolete, allowing fraudsters to exploit gaps in the system.

Integration with Existing Systems

Integrating an automated fraud detection solution into a business’s existing platforms can be challenging, particularly for financial institutions with complex, interconnected systems. It’s important to ensure that the new solution doesn’t disrupt daily operations or negatively impact performance. Here’s a look at some common challenges and considerations for smooth integration:

• Compatibility with Legacy Systems: Many financial institutions still rely on legacy systems that weren’t designed to support modern fraud detection tools. Integrating new technology often requires significant customization to ensure compatibility and might demand additional time and resources. It’s crucial to evaluate the current infrastructure and identify any potential gaps or limitations before implementation.
• Minimizing Operational Disruption: Adding a new fraud detection solution can introduce risks such as downtime or interruptions to existing workflows. To avoid disruptions, integration should be carefully planned and executed, with strategies in place to handle any temporary issues. Testing in a controlled environment before full deployment can help identify and resolve potential conflicts.

Successfully integrating a fraud detection solution means ensuring it fits well within your existing infrastructure and doesn’t interfere with key functions like transaction processing or customer service. 

Real-World Applications & Use Cases

To better understand the significance of automated fraud detection solutions in the financial industry, let’s explore how four major financial institutions have implemented these systems, integrated them into their operations, and, in some cases, even offer them as out-of-the-box solutions for their clients.

How Barclays Uses Automated Fraud Detection Software to Enhance Security and Customer Experience

Barclays, a leading financial institution, has implemented several layers of automated fraud detection and security measures to provide protection for its customers and their finances. The solution leverages AI technologies and strong authentication processes like PINsentry to monitor suspicious activities and respond to potential fraud in real-time.

“AI doesn’t mean letting go of the human side of our services – instead, we aim to give our customers the convenience of a digital experience with the comfort of a personal touch.” - Craig Bright Group Chief Information Officer, Barclays

Challenge

As the financial industry faces increasingly sophisticated fraud tactics, traditional security methods are no longer sufficient. 

Barclays needed a solution that could monitor transactions across multiple channels, from contactless payments to online banking, without overwhelming customers with false positives or disrupting legitimate activities. Additionally, the bank needed to maintain compliance with strict data protection regulations while enhancing security.

Solution

Barclays integrated advanced fraud detection features, leveraging AI and data analytics to enhance security and deliver a seamless experience for customers:

• 24-Hour Protection: Barclays’ automated system monitors transactions around the clock to identify and respond to unusual behavior quickly. The system also utilizes text messages or automated calls to verify any suspicious activities or changes to the account.
• Contactless Payment Security: Customers making contactless payments enjoy the same level of protection as with chip-and-PIN transactions. The solution checks for anomalies in spending behavior, providing an extra layer of safety for everyday purchases.
• PINsentry Authentication: The PINsentry device adds another layer of security by generating unique codes for each login, making unauthorized access more difficult.
• Online Security and Customer Support: Barclays uses AI and analytical tools to detect and prevent unauthorized access to online banking. If unusual behavior is detected, the bank may temporarily block the account until the transaction or activity can be verified.

Results

With the integration of automated fraud detection software, Barclays has achieved:

• Improved Real-Time Monitoring: Enhanced ability to track and respond to suspicious activities across various platforms.
• Reduction in Customer Disruptions: Lower false positive rates due to AI's capability to differentiate between normal and suspicious activity, ensuring legitimate transactions are processed without unnecessary blocks.
• Seamless Security Experience: Customers benefit from robust protection without being overwhelmed by constant alerts or manual verifications.

Lessons Learned

Barclays’ experience highlights the importance of leveraging AI technologies to improve fraud detection while balancing security and customer experience. Rather than relying solely on technology, a combination of AI-driven insights and human oversight are needed in achieving an effective and customer-friendly solution.

Implementing Automated Fraud Detection at an Online Booking Service with J.P. Morgan

J.P. Morgan is a global leader in financial services, known for its strong focus on technological innovation and risk management. 

The company offers a range of tools to help businesses tackle complex challenges, including fraud prevention. 

One such tool is the Safetech Fraud Solution, which uses a combination of advanced data analysis and real-time monitoring to reduce false positives and improve transaction security.

An online booking service struggled with increasing fraud and high false positive rates, which were causing significant revenue losses and operational challenges. After implementing J.P. Morgan’s Safetech Fraud Tools, the company saw an 86% reduction in order declines and a dramatic decrease in chargeback rates. 

Challenge

The online bookings company initially tried to use an automated fraud detection solution, but due to high false positives and poor performance, they discontinued it, leaving them vulnerable to fraud. 

This resulted in significant revenue losses, chargebacks exceeding 3% of total transactions, and increased operational costs due to a rise in manual reviews. With more than 20% of orders flagged for review and a decline rate that soared to 19%, the company faced a critical situation. 

They needed a solution that could balance fraud prevention without sacrificing legitimate sales or customer satisfaction.

Solution

The company turned to J.P. Morgan’s Safetech Fraud Tools, a comprehensive Software-as-a-Service (SaaS) application, to address its growing fraud concerns. The Safetech solution combined multiple layers of security and real-time data analytics to create an effective and efficient fraud detection system. Key components of the solution included:

• Persona™ Order Linking: Analyzes hundreds of variables to build connections between user behaviors and identify fraudulent patterns.
• Multi-layer Device Fingerprinting: Identifies devices in real-time and tracks key attributes to detect potential fraud across different devices and platforms.
• Custom Rules Management: Allows the merchant to define nearly 30 user-defined fields, such as “passport” and “Hotel User ID,” to create more targeted rules based on high-risk booking types and specific transaction data.
• Dynamic Risk Scoring and Auto-Decisioning: Evaluates transactions on the fly, scoring them based on risk and automating decisions to approve or decline transactions without manual intervention.

Results

With the implementation of J.P. Morgan’s Safetech Fraud Tools, the company achieved the following results:

• 86% Reduction in Order Decline Rate: The company saw a significant drop in the number of legitimate transactions mistakenly flagged as fraudulent.
• Chargeback Rates Dropped to 0.05%: Enhanced fraud detection and precise transaction filtering brought down the chargeback rate, allowing the company to get off Visa’s Chargeback Monitoring Program and avoid penalty fees.
• Operational Efficiency Improved: The need for manual reviews decreased dramatically, saving time and resources, and allowing the company to allocate staff more effectively.

Lessons Learned

This case study demonstrates that implementing an effective automated fraud detection solution requires a well-rounded approach that goes beyond basic automation. J.P. Morgan’s Safetech Fraud Tools combined advanced data analytics with tailored fraud prevention strategies, which ultimately helped the client regain their footing in a highly competitive market.

Belfius Enhances AI and ML Capabilities Through Cloud Transformation

Belfius Bank, one of the Belgium’s top financial institution, adopted a cloud-based infrastructure using services like Azure Machine Learning and Azure Synapse Analytics. This shift allowed the bank to accelerate development and strengthen its fraud detection and anti-money laundering capabilities.

“Azure Machine Learning provides substantial benefits for our needs. Our data scientists can simply provide a feature set specification and let the system handle serving, securing, and monitoring of the features.” - Thibaut Roelandt: Lead Engineer for the Central AI Team Belfius Bank

Challenge

Belfius struggled with a lack of coordination in its data science processes, as data scientists were frequently duplicating code for various models due to the absence of a centralized feature repository. This inefficiency hindered development speed and made it challenging to maintain consistency across different operational models. 

Additionally, the bank sought to enhance its fraud detection and anti-money laundering systems to ensure compliance with stringent regulations and to provide a safer experience for its customers.

Solution

To address these challenges, Belfius implemented Microsoft’s Azure Machine Learning Managed Feature Store, creating a centralized repository where data scientists can easily access, share, and reuse machine learning features. This solution offered the following benefits:

• Accelerated Development: Data scientists no longer need to build features from scratch, enabling quicker model deployment and reduced development time.
• Enhanced Consistency: The feature store allows for version control and standardized feature definitions, ensuring consistency across different models and use cases.
• Real-Time Fraud Detection: Using the feature store, Belfius can perform real-time scoring on transactions to quickly identify potential fraudulent activities, leading to faster detection and intervention.

Results

With the new cloud-based platform, Belfius:

• Quicker Model Deployment: Reduced the need for repetitive coding and shortened the time needed to develop and deploy new machine learning models.
• Improved Fraud Detection and AML Efficiency: Implemented real-time risk scoring for insurance claims, enabling fraud detection within minutes, and enhanced AML capabilities to focus on high-risk transactions while minimizing false positives.
• Greater Operational Control: Standardized feature engineering processes and automated monitoring have increased reliability and reduced manual overhead.

Lessons Learned

Belfius’ cloud transformation highlights the importance of using a centralized feature repository to maximize the effectiveness of AI and ML initiatives.

Revolut’s AI Feature for Preventing Card Scams

Revolut, a leading UK fintech with over 35 million customers worldwide, recently introduced an advanced AI-driven scam detection feature designed to protect its users from card scams. 

This new feature is aimed at reducing fraud losses from scams like Authorised Push Payment (APP) fraud, where criminals trick customers into sending money to fraudulent accounts. The solution uses machine learning to detect high-risk transactions and guide users through an in-app intervention flow that helps prevent them from falling victim to scams.

Company Background

Revolut is a prominent financial technology company known for its focus on innovation and customer-centric financial services. Offering a wide range of products from banking and investments to crypto services, Revolut has always prioritized security. 

Challenge

Revolut faced a growing challenge with card scams, particularly those associated with investment opportunities. Many of these scams originated on social media platforms like Facebook, Instagram, and WhatsApp, making it difficult for customers to recognize fraudulent activities. Prior to the introduction of the AI-driven feature, fraud losses related to these scams were rising, and existing methods of blocking payments were not sufficiently addressing the issue.

Solution

Revolut’s financial crime team developed an AI-powered scam detection tool capable of analyzing payment patterns to identify when a customer might be under the influence of a scammer. If the system detects a high likelihood of fraudulent activity, it automatically declines the transaction and initiates an in-app intervention flow. This flow includes:

• Requesting additional information about the attempted transaction.
• Sharing educational content to help customers recognize scams.
• Connecting the customer with a fraud specialist through in-app chat for further guidance.

Results

Since launching the AI scam detection feature, Revolut has reported a 30% reduction in fraud losses resulting from card scams related to investment opportunities. The solution has been well-received by customers, as it balances the need for security with the flexibility to complete legitimate transactions without unnecessary blocks.

Lessons Learned

Revolut’s experience shows that implementing AI for fraud prevention goes beyond simply blocking suspicious transactions. It involves using intelligent intervention strategies to guide customers away from risky situations without compromising their overall user experience.

Future Trends in Fraud Detection

The field of fraud detection is constantly changing, driven by technological advancements and the increasing complexity of fraud schemes. Here’s a look at some emerging trends that are shaping the future of fraud detection:

AI Advancements in Fraud Detection

AI is transforming fraud detection by enabling systems to go beyond basic rule-based methods. Modern AI-driven models are becoming more predictive and adaptive, allowing businesses to stay ahead of new fraud techniques.

• Predictive Analytics: AI models can now analyze vast amounts of historical data and detect patterns that indicate potential fraudulent behavior before it happens. By identifying early warning signs and anomalies, predictive analytics helps businesses proactively mitigate risk and prevent losses.
• Adaptive Learning: Traditional fraud detection systems often struggle to keep up with new fraud tactics. Adaptive learning algorithms, however, can dynamically adjust to new data and behaviors, continuously refining their models. 
• Enhanced Customer Experience: AI advancements are also focused on improving customer experiences by reducing false positives. More precise algorithms enable businesses to detect genuine fraud with fewer disruptions to legitimate transactions. As a result, customers are less likely to encounter unnecessary blocks or declined payments, making the fraud detection process smoother and more user-friendly.

Collaboration Between Businesses

Despite the significant benefits of sharing threat intelligence and fraud data, many financial institutions and businesses are not collaborating as effectively as they could.

While criminals often use forums and encrypted channels to share techniques and coordinate attacks, the financial industry struggles with fragmented communication and a lack of shared information. This reluctance to collaborate stems from concerns over privacy, competition, and logistical challenges.

Many organizations operate in silos, keeping valuable fraud-related data to themselves. Machine learning alone is not sufficient to combat the new fraud methods that emerge every day because it relies on access to extensive data to identify and respond to evolving fraud schemes. 

In the future, a centralized repository containing fraud data from a wide range of banks could make it easier to address fraudulent schemes. 

While many financial institutions are hesitant to collaborate with their competitors, the potential to significantly reduce losses due to fraud could be a compelling reason for them to consider these unlikely partnerships.

Conclusion

Automated fraud detection solutions are becoming an essential part of the financial industry’s toolkit. They offer a more efficient way for financial institutions to identify and prevent fraudulent activities, ensuring security while minimizing disruptions to legitimate users. 

These systems, powered by advanced AI and machine learning, can handle large volumes of data in real-time, making them well-suited for the evolving landscape of financial crime.

However, implementing these solutions isn’t just about technology—it’s also about understanding the unique challenges and opportunities within your organization. 

Whether it’s reducing false positives, ensuring smooth integration, or leveraging collaboration, every aspect plays a role in making fraud detection more effective.

If you’re considering building or refining your automated fraud detection system, we’d be happy to support you. Get in touch with us, as your financial technology consulting partner we can help create a tailored solution that meets your business needs and strengthens your defenses against fraud.