Chalk up another concerning trend brought by artificial intelligence and chatbots, which now threaten to disrupt the financial industry. Even with recent bank failures isolated to a handful of banks with doomed-to-failure business models, bank executives and depositors have enough to worry about, and now the AI threat has reached the point where the federal Consumer Financial Protection Bureau (CFPB) has warned banks about the risk of poorly deployed chatbots.
Where finance is concerned, chatbots are getting smarter, and they are deployed in several ways, including phishing campaigns that take consumers to what looks like a legitimate website. At that point, their information is manipulated and captured by a chatbot that can pose as a human, according to Monica Eaton, CEO of Chargebacks911. “The biggest advantage of ChatGPT is not actually the AI, it’s actually the natural human language,” she states. “So, it’s humanized AI, which is amazing because you can’t tell that it came from a computer.”
Consumers lost $8.8 billion to fraud in 2022,
a 44% increase over 2021, which gives you an idea of how AI is pouring gasoline on the fraud fire. Another threat known as “friendly fraud” involves consumers who resort to illegitimate chargebacks, and the projected cost to ecommerce merchants could exceed $117 billion in 2023.
Eaton, whose company works with merchants and banks to manage chargebacks, says a friendly fraud scenario usually involves a lack of due diligence in validating the authenticity of a dispute. “You could have a consumer buy a pair of shoes from Amazon, and there is nobody around to validate whether they really got that pair of shoes,” she explains. “So, they can commit friendly fraud by contacting their bank and then claiming they never received the shoes. They immediately get a refund and a chargeback is filed.”
The CFPB is raising its enforcement game by bringing on data scientists and technologists to deal with consumer protection challenges and investigate discrimination based on automated systems, but this threat will require more. According to Eaton, human oversight and customer education remain imperative when AI is deployed in finance, and there should be legal consequences for fraudulent chargebacks. “Whether we’re talking about new incidents of fraud through chatbot technology, which nobody really saw coming, or new incidents of fraud from the least expected criminal, which is actually consumers, in many cases it starts out as something innocent,” Eaton notes. “The common denominator here is the bank doesn’t see it coming.”
