The sector’s regulator has revealed that commercial banks have deployed artificial intelligence technologies to spy on their employees in a new effort to combat fraud and theft spread by insiders.
Fast-growing artificial intelligence technologies, which enable machines to mimic human intelligence in thinking and learning, have taken root in almost every sector, and are now being embraced by Kenya’s financial industry to help reduce losses from fraud.
In its annual review of technological developments in the banking sector, the Central Bank of Kenya noted that lenders in the country are now using artificial intelligence to “improve operational efficiency, predict customer behavior, and manage risk more effectively,” including by closely monitoring employee communications.
“Banks have deployed AI solutions to monitor electronic communications by employees in the dealing room to detect outliers and irregularities,” the Central Bank of Kuwait said in its latest report. Annual Banking Supervision Report.
This comes as local banks have reported rising losses attributed to fraud and confirmed attempts by internal and external parties, amid an increase in lawsuits accusing lenders of inciting fraud on customers.
Leading lending institutions, including KCB Group, Equity Group, Kenya Cooperative Bank, NCBA Group, Stanbic Holdings and Absa Bank Kenya, have reported an increase in fraud attempts, forcing them to intensify their vigilance to thwart such incidents.
For example, Absa said it thwarted attempts to defraud it of Sh498 million last year, but lost Sh48 million to the fraudsters. In 2022, the lender lost more than Sh107 million to fraud but only recovered half of it.
Meanwhile, a group of banks, including Equity, Cooperative, Ecobank and Standard Chartered Bank Kenya, have recently been embroiled in legal battles with their clients who have accused them of abetting fraud on their accounts, allegedly enabled by bank employees.
This has prompted banks to look inward to thwart fraud. KCB, for example, revealed that it handled 48 disciplinary cases related to fraud last year, leading to the dismissal of 22 employees, while 26 employees resigned as investigations progressed.
The growing threat of fraud and employee engagement appears to be prompting banks to turn to AI-first technologies to monitor their employees to help detect and prevent potential fraud attempts, or accidental mistakes that could leave them vulnerable to fraud.
Banks that have already published their annual sustainability reports have acknowledged deploying AI to combat fraud, but have not disclosed details of how and where these technologies have been deployed.
“Our financial crime compliance team continues to proactively identify and prevent potential fraud, terrorist financing and money laundering activities using next-generation financial crime monitoring infrastructure and machine learning,” Standard Chartered said in its latest sustainability report, published this week.
Stanbic Bank, which also published its sustainability report this week, said it has leveraged “artificial intelligence and other advanced technologies to improve risk assessment, scenario analysis and decision-making processes”.
Other lenders have not yet published their 2023 sustainability reports.
In addition to monitoring employee communications to mitigate fraud risk, lenders are also using AI to monitor their employees’ network usage patterns, work hours, and network-based devices to mitigate the risk of cyber threats from insider actors.
“Many organizations have deployed machine learning-based solutions to detect potential insider threats as well as external cybersecurity threats,” CBK said.
NCBA Bank said it has spent $31 million (Sh4 billion) to upgrade its systems to “strengthen cybersecurity infrastructure,” amid a surge in attacks on players in the financial industry.
This use of AI is a major shift from previous years, when the use of technology in the banking sector was limited to supporting customers and predicting volatile market trends and outcomes.
In 2022, the Central Bank of Kuwait said banks were using AI only to “improve customer service and support” and help predict “market fluctuations” that analysts traditionally struggle to do.
Now, in addition to mitigating fraud and cyber threats, lenders are also leveraging AI to segment their customers for more personalized and tailored product targeting, as well as improving customer screening for anti-money laundering and counter-terrorist financing.
The central bank added that the use of artificial intelligence to improve customer service in the industry has also evolved into chatbots, which banks are now using to “simplify digital banking and improve customer integration and transactions on online and mobile banking platforms.”
Kenya’s AI industry has received increasing funding from investors over the past few years, with total investments pumped into the sector standing at Sh1.95 billion last year, surpassing Nigeria’s Sh377 million.