Published : 2 weeks ago, on 26/11/2024

Andy Vrabel

By Andy Vrabel, General Manager, Payment Ecosystem Solutions at LegitScript

As we approach 2025, financial organizations and e-commerce platforms face unique risks amplified by generative artificial intelligence (GenAI).  Changes to AI-related policy priorities and governance in the wake of the November elections are likely to accelerate these risks. As a new administration enters the White House, financial institutions and payments professionals can expect to see deregulation efforts and faster adoption of AI, which is a double-edged sword. While GenAI offers many capabilities and benefits for content creation, it has also opened doors to novel methods of fraud, which have already impacted the way payment service providers manage merchant risk.

Cybercriminals use AI to generate realistic and persuasive content, bypass traditional fraud detection methods, and target payment providers. Stakeholders in the payments space—ranging from payment facilitators to acquiring banks, e-commerce merchants, and consumers—need to be vigilant as AI-driven risks increase. Juniper Research forecasts that online payment fraud will accumulate to more than $362 billion by 2028. By understanding these emerging threats, businesses can take proactive measures to protect themselves against fraud, preserve brand reputation, and uphold compliance standards.

Here are some of the key GenAI-driven risks payments professionals should expect for 2025:

• Supercharged Synthetic Identity Fraud
  Synthetic identity fraud, involving the creation of new, fictitious identities using a blend of real and fabricated contact information, makes up more than 80% of all new account fraud and is expected to grow throughout 2025. Fraudsters can employ GenAI tools to automate the generation of synthetic identities at scale, creating seemingly legitimate applications for accounts or credit lines and allowing them to conduct illicit activities such as money laundering or making unauthorized purchases.

This method is especially concerning because synthetic identities are already challenging to detect, and they can appear even more realistic as a result of the complexity and randomness that GenAI introduces..

To mitigate these risks, organizations can strengthen their identity verification processes using a combination of automated identity verification tools and human review. Additionally, adopting more granular AI-driven monitoring tools can help detect inconsistencies in applications that are telltale signs of synthetic fraud.

• AI-Enhanced Transaction Laundering
  Transaction laundering is an ongoing concern made more challenging with emerging technologies. With new AI-driven website design tools, fraudsters can create high-quality, realistic front pages to establish false merchant profiles that make illegal transactions appear legitimate. Traditional detection methods that rely on template-based detection models may fail to identify these sophisticated, highly custom merchant websites. This puts financial institutions at risk of fines, penalties, and regulatory scrutiny.

Transaction monitoring tools can help detect unusual transaction patterns, while merchant monitoring and transaction laundering detection solutions can identify sophisticated operations built by criminal networks. Because transaction launderers are persistent, ongoing monitoring is important to catch reoffenders.

• Brand-Damaging Content and Reputational Risks
  GenAI’s ability to generate highly realistic images, video, and audio can create harmful or offensive content, including deepfakes and other manipulated media. This can damage brand reputation, especially if payment providers inadvertently process transactions linked to copyright-infringing, non-consensual, or illicit adult content. Such risks are exceptionally high in cases where AI platforms are used to create impersonations or spread misinformation, which may lead to financial and reputational repercussions for payment companies.

Payment providers should implement strict monitoring protocols and partner with third-party AI-content filtering services to protect brand reputation. Establishing clear policies and content guidelines, combined with AI-powered content moderation, can help identify and prevent potentially damaging transactions.

Solution Pathways for 2025
As the industry confronts these GenAI-driven threats, it’s essential to manage payment risks proactively. The rapid development of AI technology means that regulations are continuously evolving to keep pace. To remain compliant and mitigate penalties, companies should adopt real-time compliance monitoring solutions. These systems can flag potential risks, ensuring compliance even as regulatory standards shift. Partnering with specialized third-party monitoring services can provide additional oversight and help companies maintain up-to-date compliance across their ecosystem.

Investing in tools that enable companies to monitor regulations in real time allows payment providers to anticipate regulatory changes across jurisdictions. This is particularly critical for addressing GenAI fraud, where regulations are progressing and may vary widely from country to country and even between states.

Many payment providers are turning to adaptive identity verification solutions that evolve alongside emerging threats. These solutions offer greater resilience against fraud, providing a stable foundation for onboarding and monitoring processes.

Preparing for the AI-Driven Future of Payments
Industry-wide collaboration and knowledge sharing offer a unified approach to combating AI-driven risks that will be essential in 2025. Collaborative coalitions between payment platforms, banks, regulators, and e-commerce stakeholders can facilitate knowledge sharing and enable early detection of fraud trends. The industry can create a more resilient front against GenAI abuse by forming alliances with regulatory bodies and participating in trade organizations and other advocacy groups.

The risks associated with GenAI highlight the importance of adaptable, proactive risk management strategies in the payments industry. The threats of synthetic identity fraud, transaction laundering, and AI-generated content abuse reinforce the need for advanced technology, rigorous compliance frameworks, and industry collaboration. By investing in adaptive tools, strengthening compliance, and embracing a cooperative approach to knowledge sharing, payment providers and financial institutions can build resilience in time to mitigate the threats  of an AI-driven future.

About the Author:

Andy Vrabel is the General Manager of Payment Ecosystem Solutions at LegitScript, where he is responsible for ensuring the success of their payments-related products. Andy oversees the delivery of meaningful and actionable merchant risk intelligence to clients, sets the strategic path for payment ecosystems solutions within the company, and ensures the team of expert analysts and staff supporting the organization can deliver on LegitScript’s mission of making the internet and payment ecosystems safer and more transparent. Andy holds a bachelor’s degree in criminal justice and a master’s degree in management and leadership. He is a certified anti-money laundering specialist (CAMS).