How AI Is Shaping Finance: Security

The finance sector is evolving with Artificial Intelligence (AI), and this is especially true when it comes to security. With such new innovations, these represent only a portion of the changes that are worth monitoring.
The gradsingapore Team
Brendan Yee
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According to a report by McKinsey, more than 90% of consumers have used some form of digital payment in 2023, and as time passes, more financial transactions will keep happening online. This would make security in finance critical, and financial institutions need to stay vigilant while constantly enhancing their existing infrastructure.

Without a strong defence, everything from personal data (like your name and date of birth) to financial information like credit card numbers and transaction histories can be left vulnerable to hackers. These days, cybercriminals utilise powerful tools and sophisticated methods to not only openly probe financial institutions for weaknesses, but also infiltrate their systems with more deceptive techniques.

Given the fluid nature of financial security, aspiring professionals looking to join this field should certainly stay informed to grasp the transformations happening in the field.

Implementing cutting edge verification methods

While AI has seen its capabilities used to enhance operations in banks and financial firms, these same powers are being abused for cybercrimes, too. It's no secret that those with malicious intent are coming up with new and more creative ways to infiltrate secure domains in order to gain access to sensitive information.

As such, AI systems are essentially a double-edged sword, with both hackers and users now employing them to launch attacks and safeguard fiscal infrastructure respectively. Tactics like phishing, impersonation and scam transactions are now augmented by AI’s widespread availability.

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To combat these evolving threats, financial institutions have turned to their own upgraded platforms and integrated more complex countermeasures. Broadly known as Know Your Customer (KYC), banks have progressed to using customer recognition features like facial scanning, ID and/or official document verification.

Designed to root out illegal money laundering and financial activities, these procedures have allowed financial institutions to safeguard both their internal infrastructures and ensure the safety of their clients. This not only discourages cybercriminals but also maintains the trust and confidence of both existing and new customers, which in turn, allows the business to flourish.

Enhanced fraud detection

Up until recently, banks depended on conventional, rule-based Anti-Money Laundering (AML) systems for transaction monitoring and name screening. Yet, despite its effectiveness, much has changed over the years and these practices are now becoming obsolete in the face of superior malware.

Apart from the fact that these intrusions are getting more advanced, older systems lack the accuracy that up and coming platforms are known for, which results in a significant number of incorrect alerts. With this in mind, firms are now employing AI to meet these challenges.

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A notable example is Visa’s AI fraud detection service. Dubbed as Visa Provisioning Intelligence (VPI), it monitors for unusual spending patterns across 65,000 transactions per second and identifies suspected fraud within 300 milliseconds (0.3 seconds) of a transfer occurring in real time.

By upgrading existing security infrastructure with AI models, financial institutions are now increasingly capable of identifying behaviour indicative of fraudulent exchanges. These models will be utilised to predict potential frauds by identifying vulnerabilities or weaknesses in the interactions between regulators, institutions, and investors with broader application.

Securing communications with quantum technology

Open communication channels are one of the more vulnerable aspects of financial institutions. To enable efficient correspondence requires both sides to be able to send and receive information. This means that, in spite of all the preventive measures, there is still a degree of exposure that can be exploited by hackers, which in turn can lead to an information breach.

To counter this possibility, banks are now leveraging the principles of quantum physics in order to completely secure communication channels without isolating them from external sources. This allows them to not just fortify open channels but further enhance the potential of their AI systems.

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Credit: TechTarget​​​​​​

A notable case is HSBC, who spearheaded the use of a new quantum cryptography system in 2023 called Quantum Key Distribution to fortify AI-driven currency market trading. In simple terms, these systems make use of the basic tenets of quantum mechanics to encrypt data. This makes it virtually unhackable compared to the traditional method of using mathematical encryption, which can be broken in a matter of moments.

By combining the potent capabilities of AI models and the nature of quantum mechanics, financial firms are able to create an ecosystem that is safe from even the most fearsome malware and advanced tactics.

Protecting the financial sector with AI

Much has been made of the power of AI. With sentiments on both sides of the argument, the one thing that everyone can agree on is its uncanny ability to significantly impact the workings of just about any industry. To overhaul work practices is not easy and to do so at such an exponential rate is staggering, and cybersecurity in the field of finance is one such place.

By embedding AI components alongside complementary software, banks and other institutions are better able to prevent unauthorised access by hackers and to protect sensitive information. Those aiming to make this their full time profession should thus understand this salient fact and remain informed about any on-going and new developments in the field to stay relevant. In doing so, future candidates can enjoy a more seamless transition into the workforce.