Fraud is an umbrella term encompassing activities involving a distorted representation of facts. Such activities are usually undertaken for financial or personal gain and are committed with the purpose of deceiving innocent individuals.
Today, fraud has become mainstream and permeated all walks of our life—personal and professional—leading to dire consequences.
According to the Federal Trade Commission, consumers lost over US $5.8 billion to fraud last year.
PwC’s Global Economic and Fraud Survey reveals that 46% of the surveyed organizations admitted to facing fraud or other economic crimes in the past 2 years.
Fraudulent activities spell disaster for business organizations, negatively impacting shareholders, creditors, investors, and key executives. It also besmirches a company’s reputation, erodes customer confidence, and leads to a loss of market share.
So, how can companies detect and prevent fraud?
By investing in fraud detection systems.
What is a Machine Learning Fraud Detection System, and Why Should You Invest in It?
Before we dive into machine learning fraud detection systems, let’s first understand what fraud detection systems are.
Fraud detection systems are advanced solutions that go beyond traditional fraud detection methods, involving manual computation, to discover, trail, and intercept fraudulent activities. They’re particularly vital for online enterprises to detect and mitigate fraudulent attacks in real-time.
Fraud detection systems are utilized by businesses to continuously detect illegal and treacherous online activities to prevent fraudulent transactions, cyberattacks, and identity theft. It also helps enhance identity security, protect sensitive and classified information.
Now, you might be wondering where machine learning comes in and its role.
Machine learning is an extension of artificial intelligence (AI) and employs data and algorithms to emulate a human’s learning method and enhance its veracity.
Fraud detection systems require data analysis of a large dataset, and machine learning can not only help simplify the process but also discover and track fraudulent transactions easily and effectively. They can be deployed to recognize and flag fraudulent transactions based on past cases of fraudulent activities.
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Reasons Companies Should Invest in Machine Learning Fraud Detection System
Fraudsters achieve their goal by exploiting gaps within systems to siphon funds, pose as someone else, induce chaos, or for other nefarious reasons.
Fraud detection is an interminable activity. Thus, your fraud detection system must perpetually assimilate from prior fraud instances and administer the results to its detection and tracking procedures.
Machine learning makes that possible without putting significant strain on existing resources. It has a myriad of other benefits as well.
1. Minimizes false positives
Machine learning engines are continuously learning and can be trained actively to flag and block, or permit specific end-user actions. This makes it easier to identify fraudulent transactions and identity theft and track dubious users.
Rule-based systems make it difficult to distinguish between genuine users and fraudsters. By nature, rule-based systems are complex mechanisms, and they get even more challenging as more and more layers of rules keep piling on the existing ones.
This gives birth to two important problems. One, it might lead to genuine users getting blocked. Two, you may lose out on market share since the frustrated users might switch to your competitors. To avoid this, you can conduct customer experience research.
Such legacy systems will save you costs initially, but if you continue employing them, your business will have to pay a steep price down the line.
Such is not the case with AI fraud detection systems. While training the machine learning engine, you can indicate former instances of fraud and genuine transactions. This will let you minimize false positives and enhance risk rules.
2. Painless scaling
With the passage of time, a business’s security team keeps adding more rules to rule-based legacy systems, making them heavier, more complicated, and slower.
Moreover, it’s difficult for legacy systems to detect and monitor granular data, increasing their dependence on humans. This also adds to the workload of security teams.
On the other hand, machine learning engines tend to learn and refine their accuracy level as more and more data is fed into them. Over time, they become adept at flagging and blocking fraudulent transactions, decreasing human interference.
The larger the scale of data machine learning engines are trained on, the better they get at identifying authentic and fraudulent actions.
3. Enhanced speed
Rule-based fraud detection systems need exact written rules to be put in to educate the algorithm regarding transactions that seem genuine and should be permitted and transactions that seem suspicious and must be brought to attention.
Not only are such rules taxing to code, but they also take a lot of time.
Moreover, it’s crucial to have a system in place that can detect fraud quicker to match the dynamicity of the business world.
Machine learning algorithms can continuously analyze and process large amounts of new datasets in a relatively shorter period.
4. Increased efficiency
Machine learning engines are also more adept at unearthing elusive patterns to identify fraudulent activities. Additionally, a machine learning model can autonomously update itself to reflect the latest trends since it continuously analyzes and processes new data.
As opposed to humans, machine learning engines can work 24*7, 365 days a year, without the need for regular breaks. They can also work on repetitive tasks without getting bored.
They can easily take over regular, repetitive tasks of data analysis, freeing up the time of data analysts. This enables them to work on high-level projects and make strategic decisions.
5. Save costs
Machine learning models can help you automate your data analysis processes to detect and mitigate fraud.
This will improve the accuracy of risk analysis, minimize human intervention, provide you with transparent and bias-free data, eliminate human error, and aid you in saving money that you’d have to otherwise invest in traditional processes manned by humans.
Through machine learning engines, you can detect and stop fraudsters in their tracks literally to save your company from financial ruin. You don’t need to hire more risk analysts, and you can automate various mundane tasks to cut down on your operational costs, time, and effort.
Protect your business against fraud. Invest in a machine learning fraud detection system!
Challenges Associated with Machine Learning Fraud Detection Systems
Although machine learning fraud detection systems are unparalleled and far superior to traditional rule-based systems, they’re not without limitations.
1. Dependence on data structure
Machine learning fraud detection models are based on data. They feed on data continuously to conduct data analysis and detect fraudsters.
If supervised machine learning technique is utilized, the data fed to such models must be clean and labeled. Otherwise, your organization will not be able to take full advantage of machine learning fraud detection systems.
Organizations with inefficient data structures will have to utilize unsupervised machine learning as it’s not dependent on historical data. While unsupervised machine learning can help you detect previously unknown data patterns, you can’t train the model or expect it to highlight fraudsters based on former experience.
It’s recommended that you apply both supervised and unsupervised machine learning techniques to set up an effective and efficient fraud detection system.
2. Diversity of data
To perpetually detect fraud, different machine learning methods, and data sets are needed contingent on the industry, context, and transaction rules.
With the emergence of new data, fraud detection models must be updated too. To achieve this, you’ll have to hire and retain an impressive team of data scientists.
3. Need for a copious amount of data
Machine learning fraud detection systems need a significant amount of datasets to evolve and produce accurate results.
For large businesses, it will not be an issue to train machine learning models based on historical data, but it’s problematic for small businesses since they might not have enough datasets to build cause-and-effect correlations.
Machine learning models might produce erroneous data or conduct irrelevant fraud analysis without a strong correlation.
As a general rule of thumb, machine learning systems must be provided with enough datasets and time to get started.
4. Limited by inputs
Although you can utilize machine learning models to differentiate between fraudsters and genuine users, it can’t help you get to the bottom of the issue.
If you’d mistakenly marked a genuine action as fraud, the whole system would be negatively impacted. This will affect your future results and decrease the accuracy of your fraud detection system.
Machine learning fraud detection systems also can’t help you understand what makes an end user’s actions suspicious. Though they imitate human learning, it’s hard to imitate human psychology and understand complex human behavior.
Invest in Machine Learning Fraud Detection System To Detect and Prevent Fraud
A well-trained machine learning system can work wonders for your fraud detection strategy. Unlike traditional rule-based systems, they reduce human dependency, increase transparency, minimize the time and effort required, enhance efficiency, and save costs. Machine learning systems are equipped to detect and prevent fraud in real-time and help you distinguish false positives from true fraud. Although machine learning models won’t replace risk analysts, they will help save them time and effort, and offer them data-driven analytics for making strategic decisions.
Growth Hackers is an innovative AI agency helping businesses from all over the world grow. There is no fluff with Growth Hackers. We help entrepreneurs and business owners invest in a machine learning fraud detection system, increase their productivity, generate qualified leads, optimize their conversion rate, gather and analyze data analytics, acquire and retain users and increase sales. We go further than brand awareness and exposure. We make sure that the strategies we implement move the needle so your business grow, strive and succeed. If you too wamachine learning fraud detection systemsnt your business to reach new heights, contact Growth Hackers today so we can discuss about your brand and create a custom growth plan for you. You’re just one click away to skyrocket your business.
