3 innovative ways banks are helping protect you from financial fraud

Money 20/20 is a fast-paced conference held annually in Las Vegas, chock-full of the latest and greatest when it comes to technology, products and best practices for the financial services industry. I had the opportunity to attend the four-day conference with my editor, Marc Wojno. We attended dozens of informative sessions (unsurprisingly, generative artificial intelligence (AI) was the topic du jour), and we appreciated the opportunity to meet up with numerous movers-and-shakers in the banking and fintech industries.

Day 1 of the conference consisted of several sessions on how banks and fintechs are making use of AI. Presenters emphasized AI’s staggering potential, and one stat that stuck with me was that JP Morgan Chase expects AI will deliver $2 billion in value for the bank in 2024. Many presenters spoke of leveraging AI in thwarting cyberattacks as well as preventing identity theft and other crimes.

As a banking reporter, I was particularly interested in learning more about what banks are doing these days to keep their customers safe from such financial crimes — whether it’s through high-tech AI methods or ones that involve a human touch. In gathering information, I spoke with various attendees of Money 20/20, as well as bank representatives and a personal friend who recently lost tens of thousands of dollars due to bank fraud.

Based on what I gleaned at the conference, here are various ways banks and credit unions are working to help keep your money safe.

1. Behind-the-scenes algorithms are monitoring your banking transactions in real time

When you’re doing your banking on a computer or smartphone, your bank is likely conducting fraud analysis behind the scenes. These checks are typically applied at various times, including when you’re signing up for a bank account or applying for a loan.

Prevention of synthetic identity fraud

One common vehicle used to commit financial fraud as of late is a synthetic identity, wherein fraudsters combine both real and fake information — a real social security number and a fake name, for example — to create a fictitious identity that appears legitimate. In fact, 45 percent of fintech companies reported an increase in synthetic identity fraud in the past 12 months, according to a report from GBG IDology, a provider of fraud prevention solutions.

Identity thieves commonly use AI to help them generate such synthetic identities, which they establish over time and eventually commit financial fraud, says Joel Sequeira, director of product management at GBG IDology. These fake identities start out by paying bills and establishing credit.

To help prevent this type of crime, banks often turn to technology to help detect fraudulent identities in real time. Tools can be used to identify red flags such as an at-risk IP address, a suspect email address or the use of a suspended phone number, Sequeira says. “There’s a lot of indicators that come back, which help [companies] make a decision in a split second before they can decide to onboard or ask for a higher level of verification.”

Prevention of fraudulent money transfers

Commonly enough, an employee of a company unwittingly transfers money to a third party as a result of criminal deception. This type of crime falls under the category of occupational fraud, which is likely the largest and most costly form of financial crime globally, according to a 2024 report from the Association of Certified Fraud Examiners. The estimated total annual costs of occupational fraud run in the trillions of dollars, according to the report.

A common way for scammers to lure potential victims into this type of crime is through LinkedIn, says GBG IDology’s Sequeira. “They’re able to guess the person’s email and send a note saying, ‘This is an invoice. Can you pay this invoice right away?’” To help prevent such crimes, banks and other companies can insert additional steps during money transfers to help stop such fraudulent transactions from occurring, Sequeira says.

Because such added steps can slow down the process, they’re often referred to in the industry as “friction” — although companies are typically fine with adding that friction, if it could potentially prevent the loss of large amounts of money, Sequeira says. “So if you were to transact $50,000 from a bank account, you probably will be completely fine providing that additional layer of verification, if you were asked to come to the bank branch to provide it, or if you were just sent a link to provide your documentation, such as your driver’s license.”

2. Bank branch personnel also play a role in fraud prevention

As common as it is for banks to apply cutting edge technologies to prevent fraud, there is still a human component at play. To illustrate this, I’ll tell a story about a friend of mine who was recently the victim of a government impersonation scam. When all was said and done, her savings account was depleted to the tune of tens of thousands of dollars. We’ll call her Darla, to protect her identity.

A fraud victim’s story of handing over cash in a shoebox

Darla was talking to a man who claimed he was with the Federal Trade Commission (FTC) after calling the number listed in a pop-up message on her computer. Unfortunately, she fell victim to the scam we encounter online daily that imply our computer has been compromised and that we need to call Microsoft tech support. Once the fraudster got her on the phone, he shared that her information was on the dark web and being used for identity theft. Turning over her money for him to guard was the only way to keep her funds safe until the fraudsters were caught.

Ultimately, Darla complied with the man’s requests. First, she provided him with thousands of dollars in Apple gift cards. Then, she withdrew most of her money from the bank, placed it in a shoebox and handed it to a courier who showed up at her house.

In retrospect, Darla says she should have recognized this for the fraud it was, but she fell for it because the man had successfully instilled her trust, and she was very worried how such identity theft could impact her and her son. “I’m so angry at myself,” she says. “I know enough about computers and things that this shouldn’t have happened.”

How bank personnel thwarted further fraud

On the day Darla gathered the money for the shoebox, she encountered problems withdrawing such a large sum in cash, due to safeguards set in place at the large regional bank where she’s a customer. She attempted to get around this by taking out smaller sums from multiple branches on the same day.

“The bank employees were really trying their hardest to stop me, but I kept telling them, ‘It’s my money, so why can’t I have it?’” Darla says. “They were saying to me, ‘You need this kind of money, but why? Can’t we just give you a check? Why do you need it in cash? If you’re going to be carrying cash around, that’s not safe.’”

After she visited a third branch to withdraw cash, bank personnel froze Darla’s accounts due to the heavy suspicion of fraud. This move sent an automated bank alert to her adult son, whom she’d kept in the dark for days in an attempt to protect him from becoming involved. Her son came to her home, listened to her story and helped her understand it was fraud — although not before the scammers had taken her cash. 

Although Darla wasn’t able to recover the money she’d already given the fraudsters, she became aware of the fraud in time to refrain from depleting an annuity and other investments she’d been planning to turn over to the fraudster.

Darla credits her bank’s employees for their efforts to help her and for ultimately saving her from further financial damage. During her visit to one of the branches that day, the bank manager spoke with her. “Coincidentally, they had just come out of a meeting with their headquarters about fraud,” she says. “The guy in charge pulled me into a cubicle and said, ‘Don’t do this. Please don’t do this.’ Looking back, it was stupid for me not to trust the bank.”

3. Banks are taking a proactive approach to educate consumers on security

When it comes to keeping their customers abreast of the latest ways to bank securely, banks may turn to emails, in-app notifications and social media posts, as well as webinars and virtual workshops. Many also find ways to incorporate security measures throughout the customer banking experience.

Some banks help spread awareness by incorporating informational hubs into their websites with articles on how to bank safely. For example, Chase Bank maintains a Security Center web page that contains articles on:

• Creating strong passwords
• Spotting scams
• Reporting fraud
• Using Zelle safely
• Keeping seniors safe from fraud and scams

“We start with offering our customers ways to keep their accounts safe with options for privacy and security on their mobile app and online, and provide online dos and don’ts,” says Darius Kingsley, head of business practices for consumer banking at Chase. In addition to educating consumers about safe banking online, Chase offers informational sessions in person at branches, Kingsley adds.

Some banks work to incentivize consumers to follow best cybersecurity practices. For instance, Fifth-Third Bank offers customers its free SmartShield product, which incorporates fraud monitoring, threat blocking and login security features. Included is a protection meter that rates a customer’s security measures on a tiered basis, with “exceptional” being the highest level attainable.

“Within SmartShield, users complete tasks such as updating their password or engaging with monthly quiz content to achieve higher status levels within the app,” says Ben Hoffman, chief strategy officer and head of consumer product at Fifth Third Bank. Since SmartShield launched earlier this year, more than one million customers have taken advantage of the service, Hoffman says.

Ways to protect yourself from bank fraud

In addition to the measures banks employ to safeguard their consumers from fraud, some vigilance and best practices on the part of consumers can play a major role in secure banking. Here are a few types of financial fraud, and what you can do to protect yourself from them:

1. New account fraud: This occurs when a fraudster uses someone else’s information to open a new bank account or credit card account, or to apply for a loan. “[To help prevent] new account fraud, consumers can regularly monitor their credit bureaus, although that’s typically most effective for credit extensions,” says David Liu, senior vice president, fraud & risk at identity verification services company Trulioo.

2. Account takeover fraud: In this case, a fraudster gains unauthorized access to a consumer’s account and either uses their login credentials online or impersonates them over the phone.

3. Digital pickpocketing: For this type of financial crime, fraudsters tap a mobile point-of-sale device against a victim’s pocket, wallet or purse in order to initiate a fraudulent transaction, according to Visa’s biannual threats report. To stay safe, keep wallets and purses close to your body and consider wallets that block radio-frequency identification (RFID) skimming, says Marijus Briedis, chief technology officer at security and privacy solution firm NordVPN.

Bottom line

Thanks to attending Money 20/20 and conducting follow-up research and interviews, I learned about how banks utilize artificial intelligence in real time to help prevent fraud. It was also reassuring to hear the story of a large regional bank that empowers its branch personnel to step in and counsel customers when they suspect fraud.

One thing I learned in researching this article, however, is that there’s a good deal of work ahead of banks when it comes to sharing information with each other to help prevent fraud — which is an initiative that’s likely to be hindered right now by regulations that could impede banks’ ability to innovate.

As a consumer, in addition to paying attention to emails and alerts from your bank regarding fraud, you can be proactive about banking safely by choosing strong passwords and watching your bank account activity closely.