Commercial banks are deploying artificial intelligence (AI) technology to monitor staff in a new effort to combat insider fraud and theft, an industry regulator has said.
The rapidly growing artificial intelligence technology, which allows machines to mimic human intelligence to think and learn, is taking hold in almost every sector and is currently being deployed by the Kenyan financial industry to minimise losses due to fraud.
In its annual review of technological developments in the banking sector, the Central Bank of Kenya (CBK) noted that the country's lending institutions are now using AI to “improve operational efficiency, predict customer behavior and manage risks more effectively,” including by closely monitoring staff communications.
“Banks are deploying AI solutions to monitor electronic communications by trading room staff and detect outliers and irregularities,” CBK said in its latest report. Banking Supervision Annual Report.
This comes as banks across the country report a sharp rise in losses from fraudulent and attempted fraud by internal and external actors, and a rise in lawsuits accusing lenders of facilitating fraud against customers.
Major financial institutions such as KCB Group, Equity Group, Cooperative Bank of Kenya, NCBA Group, Stanbic Holdings and Absa Bank Kenya have all reported an increase in fraudulent activities, forcing them to step up vigilance to curb such incidents.
Absa Bank, for example, says it prevented more than Sh498 million in fraudulent activity last year but lost Sh48 million to fraudsters. In 2022, the bank lost more than Sh107 million to fraud, only recovering half of that.
At the same time, a handful of banks, including Equity, Co-operative, Ecobank and Standard Chartered Bank Kenya, have recently been embroiled in legal battles after customers accused bank officials of facilitating account fraud.
That has led banks to look inward to stop fraud. KCB, for example, said it handled 48 fraud-related disciplinary cases last year, resulting in the firing of 22 employees and the resignation of 26 more as investigations progressed.
The increased threat of fraud and staff involvement is likely leading banks to turn to burgeoning AI technologies to monitor their staff to detect and prevent any possible fraud attempts or accidental errors that could make them victims of fraud.
Banks, which already publish annual sustainability reports, have acknowledged that they are using AI to combat fraud but have not provided specifics about how or where those technologies are being deployed.
“Our financial crimes compliance team continues to proactively identify and prevent potential fraud, terrorist financing and money laundering activity using next generation surveillance, financial crimes monitoring infrastructure and machine learning,” Standard Chartered said in its latest sustainability report, published this week.
Stanbic Bank, which also released its sustainability report this week, said it had “utilised artificial intelligence and other advanced technologies to improve risk assessment, scenario analysis and decision-making processes”.
Other lenders have yet to publish their 2023 sustainability reports.
As well as monitoring staff communications to reduce fraud risk, lenders are also using AI to monitor staff network usage patterns, working hours and approved devices on the network to reduce the risk of insider cyber threats.
“Several agencies have deployed solutions that leverage machine learning to detect potential insider and external cybersecurity threats,” the CBK said.
NCBA Bank said it had spent $31 million (Sh4 billion) to upgrade its systems to “strengthen its cybersecurity infrastructure” amid escalating attacks on the financial sector.
This use of AI is a shift from previous times when the banking industry’s use of the technology was generally limited to customer support and predicting volatile market trends and outcomes.
CBK said in 2022 the bank will only use AI to “improve customer service and support” and to predict “market fluctuations”, which analysts have traditionally found difficult to do.
In addition to reducing the risk of fraud and cyber threats, financial institutions are now using AI to segment customers for more personalized and tailored product targeting, as well as improve customer screening to combat money laundering and terrorist financing.
The industry's use of AI to improve customer service has also evolved into chatbots, with banks now using them to “streamline digital banking and improve customer onboarding and transactions on internet and mobile banking platforms”, the CBK said.
Kenya's artificial intelligence industry has seen increasing funding from investors in recent years, with total investment pumped into the sector last year reaching Sh1.95 billion, surpassing Nigeria's Sh377 million.
