Authored by Vinod K Singh, Co-founder & Chief Technology Officer, Concirrus Ltd

In the last ten years, the Indian fintech sector has experienced substantial growth which has completely changed the access and delivery of financial services. The country’s digital finance ecosystem has advanced to become one of the largest globally from services such as mobile wallets to UPI payments. Even so, as the volume of digital transactions increases, the volume of associated fraud risk increases as well. Billions have been lost to fraudsters as they continuously devise new ways of exploiting the system. Although traditional means of detecting fraud are effective to an extent, they are not particularly effective against the constantly changing landscape of financial crime. Artificial Intelligence (AI) enters this situation as a game-changing answer, presenting a more sophisticated and effective method of fraud prevention in real time. 

Why Traditional Fraud Detection Fails in India

Static rules-based systems for fraud prevention in Indian financial institutions have been in practice for a long time. Although previous implementations worked well, these systems have a disadvantage when it comes to advanced, modern-day attacks. There have been improvements in mobile and online banking integrating an increase in not only quantity but also the complexity of data, making it impossible for traditional means to effectively identify suspected instances of fraud, or more accurately, catch the fraudulent acts that are perpetrated. There is such a disconnect between what is available in terms of security capabilities and the current threat environment that AI interns in India’s fintech space as it brings an element of versatility as well as the ability to learn the new threats.

AI: A Game Changer in Fraud Detection

Real-time data analysis has been further enhanced by the use of AI which has the power to detect fraud patterns better than regular analysts. In cases of suspect transactions, such as a spike in the number or value of transactions or geographic location shifts, machine learning can aid in risk mitigation. Providing AI has the capability to handle bulk transactions and is applicable in such an Indian environment where billions of transactions take place on a daily basis. Thus innumerable potential fraud cases could likely be identified.

AI-Powered Predictive Analytics: A Stroke of Luck for India

AI’s prediction capabilities are one of its greatest benefits. Once equipped with the relevant algorithms, automated systems not only detect fraud in progress but also anticipate how it will creep into the future. In a country like India, where UPI payment systems and mobile wallets are now common daily practices, predictive analytics becomes a great tool for Fintech firms to acquire clients. AI systems are capable of predicting fraud due to the amount of transactions they process on a daily basis. 

Limitation of False Positives and Optimizing User Interaction

False positives are common especially for traditional fraud systems where normal transactions get flagged for fraud. This can discourage the customers and the financial institutions as there would be transaction failures and poor user experience. However, AI systems are able to minimize false positives to a large extent since they analyze the transaction data better and flag only genuine suspicious actions. 

AI’s Effectiveness and Power in the Indian Fintech Landscape

One of the major problems to be solved in the Indian fintech market is the volume of transactions. Every day there are millions of digital transactions and the number is rapidly increasing as digital finance becomes more common. AI is uniquely suited to handle this volume. With its speed and accuracy of processing large amounts of data, AI is an important part of the fintech industry in India. 

The Future of Fraud Detection in Indian Fintech

AI’s involvement in fraud detection is still a work in progress but it is very clear that, it will be central to India’s fintech future. Artificial intelligence offers the promise of advancing systems and giving bigger insights and better measures in all aspects, including the prevention of fraud. In addition, the synergies of AI with other technologies such as blockchain will make the systems stronger. For Indian fintech providers, adopting AI for the purposes of fraud prevention is not merely a matter of beating the unscrupulous but fostering trusted relationships, enhancing user experience, and building sustainable growth.