The rise of digital banking has revolutionized how people access, transact and purchase in the modern world. Whether it is cross-border payments, applying for personal loans or credit card payments, money moves at the speed of a click.
As industries embrace digital transformation and consumer expectations change, efficient, secure and real-time payment capabilities will be crucial for maintaining trust. But the success of new payment technology will be tested. With the rise of AI, financial fraud and scams are growing in frequency and complexity.
A recent TransUnion report found that 49% of consumers surveyed in 18 countries and regions were targeted by fraudulent email, online, phone call and text messaging scams in the second quarter of 2024. And this poses a significant financial risk to organizations — business leaders in the U.S., UK, Canada and India reported an average loss of 6.5% of revenue due to fraud last year, totaling $359 billion.
Experts believe that while AI may increase identity fraud and scams, it also promises better fraud prevention strategies.
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Here, Niloy Sengupta, VP and CTO, US Financial Services at Kyndryl, discusses four trends in identity fraud and how technology is helping banks combat them.
1. Escalating banking disruption costs
Banks face a complex landscape of identity fraud, ranging from traditional identity theft and account takeovers to sophisticated synthetic identity fraud (SIF). Effectively mitigating these threats demands substantial investment in time, resources and technology. Failure to implement robust risk management not only exposes banks to direct financial losses and operational disruptions but also carries significant regulatory risks, including potential penalties, business restrictions, reputational damage and litigation costs. Sengupta said proactive loss minimization should involve leveraging advanced technologies like AI and machine learning (ML) to efficiently manage the increasing volume and complexity of identity fraud while ensuring ongoing regulatory compliance.
American adults lost more than $23 billion to identity fraud in 2023. The average amount of time consumers spent resolving identity fraud issues rose sharply to 10 hours.
Source: Javelin Strategy & Research and AARP | 2024 Identity Fraud Study: Resolving the Shattered Identity Crisis
2. Rising synthetic identity fraud
Synthetic identity fraud, where criminals create fictitious identities combining real and fabricated Personally Identifiable Information (PII), is among the fastest-growing financial crimes in the U.S., according to Sengupta. To combat that, he said banks should proactively secure customer onboarding, combining biometrics, document checks and device authentication to block synthetic identities at entry. To check for inconsistencies in identity data, banks should use multiple sources such as government databases, credit bureaus and proprietary data sources.
An effective SIF risk mitigation strategy must combine enhanced Know Your Customer (KYC) checks with effective link analysis. The latter is a set of processes that look across various banking instruments — checking accounts, lending accounts and other financial instruments — to identify relationships or common characteristics of synthetic identities, such as multiple users with the same SSN or multiple account applications originating from the same IP address.
Synthetic identity fraud could reach $23 billion in estimated losses in the U.S. alone by 2030.
Source: London Stock Exchange Group | 2025 fraud and payments forecast: Key trends and emerging threats in the global landscape
How tech can help banks
AI and machine learning detect and block bot-like behavior during new account registrations in real time. They also identify synthetic identities by spotting discrepancies in user profiles and behaviors.
Generative adversarial networks (GANs) is a type of generative AI that can simulate normal and fraudulent behaviors, especially during fake account openings. They detect minor deviations from legitimate patterns and take real-time corrective actions to prevent significant financial losses.
3. Balancing risk management and customer experience
Risk management and customer experience can sometimes conflict. Customers don’t want to bank with institutions prone to scams and fraud. However, risk management adds controls and policies that can slow processes and create friction. If opening a bank account or moving money becomes too difficult because of several layers of complex checks and delays, customers might switch to a competitor for a better experience. According to Sengupta, banks must balance managing risks without significantly harming customer experience. Too little or too much risk management is not very helpful for customers. Ultimately, banks need to find the right level of acceptable risk that they can take to balance the needs of customers, regulators, employees, investors and other stakeholders.
Nearly 20% of U.S. consumers have moved their business elsewhere, while 38% reported considering ending a new account opening mid-way through the process due to a poor experience.
Experian | Global Identity & Fraud Report 2024
4. Securing robust banking ecosystems
The adoption of ecosystem models in banking, integrating third-party providers to enhance services, introduces significant risks. Sengupta highlights that poor third-party risk management can lead to financial losses, regulatory penalties and reputational damage, undermining the benefits of ecosystem participation. Data breaches or service disruptions from partners directly threaten financial institutions. That’s why robust third-party risk management frameworks are essential, including thorough due diligence, clear contractual agreements, continuous monitoring, strong internal governance and contingency planning.
73% of organizations experienced at least one significant disruption caused by a third party between 2018 and 2021.
Source: KPMG | Third-Party Risk Management Outlook 2022
