AI-driven identity fraud on the rise, says Signicat report

Signicat, a prominent player in digital identity and fraud prevention solutions in Europe, has published a new report highlighting the rising threat of AI-driven identity fraud in collaboration with the independent consultancy, Consult Hyperion. The research, titled "The Battle against AI-driven Identity Fraud," explores how European organisations are grappling with this growing menace.

The study is significant as it marks the first comprehensive look into the impacts of AI on identity fraud, surveying over 1,000 fraud prevention decision-makers across Belgium, Germany, the Netherlands, Norway, Spain, Sweden, and the UK. The findings paint a concerning picture of how AI technology is being exploited for fraudulent activities.

One of the standout revelations is the increasing prevalence of AI-driven identity fraud. According to the data, 42.5% of detected fraud attempts involve AI, with successful breaches accounting for 29% of these attempts. Remarkably, one in fifteen fraud attempts now employ deepfakes—a technology once perceived to be on the fringes but now a mainstream tool for fraudsters. Deepfakes are not just targeting business-to-consumer (B2C) transactions anymore but are increasingly affecting business-to-business (B2B) interactions as well.

Pinar Alpay, Chief Product and Marketing Officer at Signicat, expressed concerns about the current state of readiness among institutions tasked with combating this evolving threat. "Our findings indicate that while decision-makers are aware of the problem, they lack the necessary expertise, time, and budget to implement effective preventive measures," Alpay noted. This sentiment is echoed by David Birch, Director at Consult Hyperion, who emphasised that understanding and preparing for AI-driven identity fraud should be a priority for financial institutions.

The report underscores that organisations are indeed at an inflection point. Despite the awareness, a gap exists between the recognition of the threat and the deployment of countermeasures. Only a quarter of the surveyed companies have begun implementing solutions, although three-quarters have dedicated teams and plans to upgrade their fraud prevention technology within the next year.

The rise in AI-driven fraud is not making fraud more successful per se, but it is enabling more sophisticated methods at a much larger scale than ever before. This shift from creating synthetic identities to compromising existing accounts has flagged account takeover as the most common fraud type in B2B sectors, often exploiting weak or reused passwords.

Financial institutions, according to the report, estimate that AI-driven fraud accounts for 38% of revenue loss due to fraudulent activities. However, despite the advanced threats posed by AI, the overall success rates of fraud attempts have remained steady over the past three years. This stability suggests a pressing need for more proactive and sophisticated defence mechanisms.

Asger Hattel, CEO of Signicat, highlighted that while understanding of the threat is high, the response has been inadequate. "AI is only going to become more sophisticated. Fraud prevention decision-makers must be equipped with the necessary expertise and resources to prevent it from escalating into a major threat," Hattel urged.

Birch from Consult Hyperion offered a strategic perspective, stressing the need for robust identity systems that can dynamically adapt to evolving fraud tactics. "Identity, as the first line of defence, must be resilient against these high-tech fraud methodologies to protect legitimate customers and maintain service integrity," Birch pointed out.

Signicat advocates for a layered approach to fraud prevention, employing a suite of AI-enabled tools designed to secure every aspect of digital identity management, from initial verification through authentication to continuous monitoring. This comprehensive strategy aims to keep pace with the escalating sophistication of AI-driven fraud.

The report, drawing on data collected via an online survey conducted by independent research house Censuswide between 22nd March and 23rd April 2024, is a clarion call to financial institutions to bolster their AI-driven fraud prevention measures.