What is AI-based fraud?

Artificial intelligence-based fraud, also known as AI-based fraud, refers to fraudulent activities or scams that are facilitated or enhanced by the use of artificial intelligence (AI) technologies, which is the science of simulating human intelligence and problem-solving skills in machines. Some examples of AI include generative AI, natural language processing (NLP), speech recognition, and machine vision.

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Artificial intelligence is a double-edged sword. While it has revolutionized industries and brought convenience to our lives, it has also empowered and assisted cybercriminals to devise even more sophisticated fraud schemes. In this blog post, we'll:
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• Explore three common types of AI-based fraud, each with its own set of challenges and consequences.
• Learn how artificial intelligence turbo-charges each type of fraud.
• See how advanced digital identity verification and authentication can mitigate AI-based fraud by addressing one of its root issues – that digital identity is broken today and fraudsters exploit that vulnerability.

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What are some common examples of AI-based fraud?

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Social Engineering Schemes

Fraudsters use social engineering schemes to psychologically manipulate and deceive individuals into revealing sensitive information or making security mistakes. Some common forms of social engineering include:
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• Phishing: This is a form of identity theft where cybercriminals send seemingly legitimate emails or messages to trick users into disclosing personal information, such as passwords or credit card details.
• Vishing: A variation of phishing and identity fraud, vishing uses voice communication to impersonate legitimate entities and extract confidential data over the phone.
• Business Email Compromise (BEC) Scams: Fraudsters compromise business email accounts to impersonate employees or executives, targeting financial transactions or sensitive data.

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How fraudsters use AI to supercharge social engineering

AI has turbo-charged social engineering attacks by enabling criminals to create personalized, convincing, and highly effective messages in an automated way. As a result, cybercriminals can launch a higher volume of attacks in less time, with a heightened success rate.
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Password Hacking

Cybercriminals have harnessed AI to enhance their password-cracking algorithms. These smarter algorithms enable quicker and more accurate guessing, making hackers more efficient and profitable. This evolution may usher in a renewed focus on password hacking.

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How fraudsters use AI to supercharge password hacking

With AI, hackers can guess passwords more effectively, posing a significant threat to the security of online accounts and systems. This calls for a proactive approach to password management, encouraging the use of strong, unique passwords and multi-factor authentication.

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Deepfakes & Voice Cloning

AI's ability to manipulate visual and audio content has given rise to deepfakes and voice cloning, where deceit takes on a new dimension. Cybercriminals can use these techniques to impersonate individuals, spreading fabricated content across influential social media platforms.

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How fraudsters use AI to supercharge deepfake and voice cloning scams

Deepfakes and voice cloning are powerful mediums for cybercriminals, allowing them to craft convincing fake media that can induce stress, fear, or confusion among those who consume them. These malicious tactics can be combined with social engineering, extortion, or other types of fraud schemes, making them even more insidious.
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How can AI-based fraud be mitigated?

Mitigating AI-based fraud involves a combination of advanced technologies, robust security practices, and continuous monitoring. Here are several strategies to help organizations mitigate the risks associated with AI-based fraud:

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Adopt Advanced Authentication Methods

Implement multi-factor authentication (MFA) to add an extra layer of security beyond passwords. However, it’s important to avoid older forms of MFA such as one-time passcodes (OTPs) and instead opt for more advanced MFA methods such as the Prove Auth^® identity authentication solution, which helps increase security while decreasing user friction.

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Address the Root Issue with Robust Digital Identity

Even before AI systems became mainstream, our broken system of digital identity was a critical flaw. The internet’s current model of verifying identities relies on credentials like personal information that was already easy to spoof or buy. Now, AI technology is making it even simpler by enabling criminals to fake faces, voices, and other biometrics. Now, more than ever, we need to finish the work we’ve started and fix the digital identity gap with privacy-preserving, consumer-consented, strong identity verification and authentication to prevent fraudsters from gaining unprecedented power. At Prove, we do this with something that almost everyone has – a mobile phone. Learn more here.

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Fraud Detection Models

Develop and implement AI-driven fraud detection models that can analyze transactions, user behavior, and other relevant data in real time. Regularly update and refine these models to adapt to evolving fraud techniques.

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Collaboration and Information Sharing

Participate in industry collaborations and share threat intelligence to stay informed about emerging fraud patterns. Share information with other organizations, credit card providers, financial institutions, and cybersecurity entities to collectively combat fraud.

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Regular Security Audits

Conduct regular security audits and assessments to identify vulnerabilities in systems and applications. Address any weaknesses promptly to prevent exploitation by fraudsters.

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User Education and Awareness

Educate users about common fraud tactics, phishing techniques, and the importance of keeping their credentials secure. Encourage users to report any suspicious activities promptly.

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Regulatory Compliance

Stay compliant with relevant data protection, privacy, and security regulations. Understand and adhere to industry-specific regulations related to fraud prevention and reporting.

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By combining these strategies, organizations can create a more resilient defense against AI-based fraud, adapting to new threats and maintaining a proactive approach to security.

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Are consumers aware of what AI-based fraud attacks are and are they concerned?

Prove’s 2023 Online Shopping and AI-Based Fraud Report found that 72% of consumers surveyed said they were aware of what AI-based fraud is, and, when told what AI-based fraud is, 84% said they were concerned about it while shopping online this holiday season. Based on these results, consumers are aware of the threat that artificial intelligence poses when it comes to aiding fraudsters. For more information, read the full report here.
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Conclusion

As AI models continue to advance, so do the tools at the disposal of cybercriminals. The landscape of fraud is constantly evolving, and understanding the different types of AI-based fraud is crucial for individuals and organizations alike. Vigilance, education, and proactive security measures are essential to protect against these shapeshifting threats. AI algorithms may empower the dark side of the digital world, but they also offer opportunities for AI-powered cybersecurity and digital identity to combat these evolving challenges.

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Wondering how banks can get ahead of AI threats and take advantage of the opportunities it offers? Read our recap of American Banker’s recent webinar with our CEO entitled: Banks and AI: How to Get a Head Start Using Advanced Digital Identity.