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Artificial-Intelligence

Why Artificial Intelligence Powered Fraud Management

Artificial Intelligence (AI) is not new and it has been around for decades. However, with the advent of big data and distributed computing that is available today, it is possible to realize the true potential of AI. From what started as an interesting story line in SCI-FI movies to programs like Alpha-Go which has been beating humans, AI has been evolving. AI also has branched out into multiple sub categories such as Machine Learning, Deep Learning, Re-enforcement learning etc.
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An effective Fraud Management (FM) strategy includes 3 important pillars: Detect, Investigate & Protect. We believe AI can positively influence all the 3 pillars of fraud management, from reducing false positives to helping in mining root cause analysis to creating enhanced customer experience in protection.

In this post I would like to look at the starting pillar of the Fraud Management strategy – “Detection” and look at AI’s influence in this very important step. A traditional approach to Fraud detection has been through Rule Engines which could be:

  • If-Else Conditions
  • Thresholds
  • Expressions
  • Evaluating Data Patterns
These are widely known as deterministic solutions where an event triggers an action. The biggest pros and cons with this approach is that human intervention is needed to feed the logic.

For eg: for a threshold based detection humans have to feed the rule engine that count of records above a certain threshold is suspicious.

Following diagrams shows how this looks like

rule-engine

After looking at the diagram above an important question arises, should this threshold value be a straight line or can it bend based on how data behaves. Now there are ways for rule engine to behave like mentioned in the diagram,

variable-threshold

for eg, instead of having a single rule lets have multiple rules

  • Per Customer Category
  • Per Destination
  • Per Age of Customers

And multiply that with other dimensions in data which are

  • Phone Number
  • Caller Number
  • Called Number
  • Country Code

And multiple that with other set of measures per dimensions

  • Count
  • Duration
  • Value

And throw an additional billion volumes at the datasets

Quickly FM teams ends up with something like this
AI Blog1
But what they wanted or dreamt was this
AI Blog2

Now I am not saying FM teams are not skilled enough to fly, but a fraud team in a modern Digital Service provider should be more focused on other important factors.

machine-learning
So, let’s look at how a very evolved class of Artificial Intelligence known as Machine Learning looks at this problem statement. Rather than humans feeding domain information or thresholds, Machine Learning Algorithms mine data from historic fraudulent behaviors and create models. These models are then used to evaluate real production datasets to score whether they certain activity is fraud or not. An advantage is that these models are very good at looking the datasets from multiple dimensions and measures at the same time and concluding whether event is fraud or not.

This approach thereby helps in achieving multiple KPI’s of fraud management teams there by increasing efficiency.

  • Higher Accuracy – Because AI can learn and adapt to Business scenarios faster, AI can significantly increase True Positive ratio
  • Reduced time to detect – How fast a fraud event can be detected
  • Self-Learning – How over a period changing business scenarios and seasonality in data can be adopted to Fraud detection
  • Fraud Intelligence– How customer or any other entity behaviors can be learnt and categorized for better fraud detection
  • Proactiveness – Ability to mine for unknown patterns not seen in the data earlier
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Application of Artificial Intelligence has its own significant challenges and requires a new frame of thought, however looking at the Data Tsunami that has hit the fraud management teams, it looks an AI pro approach would only help Fraud Management teams to scale further.

Nithin Gangadharan

Nithin has more than 10 Years of experience in Fraud Management. He started his career as an Implementation Consultant with Subex Ltd and has been part of many Fraud Management implementations across APAC & Middle East. He has also been a Subject Matter expert & Business Solution Consultant earlier. Nithin is currently working as Product Line Manager for Fraud Management and machine learning developments at Subex.

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