Lenders historically have relied on consumers as key partners in minimizing fraud losses. I remember back in the early 2000s, when I first started working in fraud prevention, how industry and policy makers treated consumers as the fraud defense of first resort.
At the time, lenders and policy makers viewed identity fraud and credit card account takeover as the gravest, emerging fraud threats. To fight this scourge, we looked to consumers. Who knew better than consumers themselves if a credit card transaction was fraudulent or if a fraudster had opened a fake account with the consumer’s name? Hence, Congress and the states passed a slew of legislation arming consumers with better tools to act as de facto fraud analysts for businesses.
Legislation That Empowered Consumers as Fraud Defenders
To wit, when Congress passed the Fair and Accurate Transactions Act (FACTA) in 2003, consumers obtained one free annual credit report from each of the nationwide credit bureaus (TransUnion, Equifax, and Experian) to check their accounts for fraud. FACTA also gave consumers the right to put fraud alerts and credit freezes on their credit reporting files. That same year, California’s pioneering data breach notification law S.B. 1386 went into effect, triggering a nationwide stampede of similar state laws. As with FACTA, these state laws were built on the premise that consumers could take protective action if notified of breaches of their identity information.
The Rise of AI-Generated Fraud: A New Challenge
When countering AI-generated fraud, today’s lenders should expect less help from consumers. The problem is that AI-based imitations are getting so sophisticated that they can outwit an ordinary person’s ability to sift the real from the fake. Photos of human faces created by AI systems now look more real to human viewers than pictures of the face of real people. Technologies supporting synthetic voices and videos are rapidly diminishing the capabilities of individuals to distinguish between real and fake video calls.
Why Consumers Can’t Be the First Line of Defense Against AI Fraud
In the realm of document fraud, we’re seeing the same scary trend. In March, TechCrunch reported that new generations of large-language models already can produce plausible fake receipts, including wrinkles in the receipt, fake food stains and smudges. More worrying for lenders, consumer bank statements and paystubs can be similarly spoofed, creating challenges even for sophisticated human fraud analysts.
To combat AI generated fraud, it is unreasonable to expect consumers to act as the first line of defense. Lenders will need AI-powered tools that can identify suspicious documents and activity, or can proactively alert consumers to potential frisks. At Informed, we have developed Informed Defender, which lenders use to detect document manipulations that ordinary human eyes can’t detect. Informed can identify various subtle anomalies in documents such as font manipulation, use of previous fraudulent templates, manipulated bank transactions or employment codes, and document metadata to detect evidence of fraud.
Conclusion: The Shift from Consumer-Centric Defense to AI-Driven Solutions
This is not to say that consumers will disappear entirely as fraud fighters. Consumers can provide feedback on legitimate and fake transactions to help improve the efficacy of the AI models in deployment. Consumers also will still need to heed warnings from anti-fraud systems not to open a suspicious email or document. Consumers will still be relied on as a source of truth to confirm that a prospective transaction is fraudulent. And consumer education will still matter to minimize certain types of scams such as pig butchering, where consumers are manipulated, often over long periods of time, to withdraw money from their accounts and pass it onto fraudsters. But it does appear that the heyday of consumers as the tip of the spear in the fight against fraud is over.
