AI Reshapes Payments Fraud Landscape, Creating New Threats and Defenses

Artificial intelligence is reshaping the payments landscape, creating a dual-edged sword for financial security: sophisticated new fraud tools that threaten consumers and businesses, alongside advanced defensive technologies designed to counter them.

Background and Context

The payments industry faces an increasingly complex threat environment as fraudsters leverage artificial intelligence to enhance their deceptive tactics while financial institutions simultaneously deploy AI to strengthen defenses. This technological evolution occurs against a backdrop of persistent traditional fraud methods, with about two-thirds of businesses encountering check fraud in 2024, according to the latest Association for Financial Professionals survey.

The emergence of AI-powered agentic commerce—where artificial agents shop and purchase on behalf of consumers and businesses—has added another layer of complexity. As card networks, processors, and fintechs race to harness this technology's potential, they also face unprecedented security challenges that could reshape fundamental payment authentication and authorization principles.

Key Figures and Entities

Industry experts monitoring these developments include Peter Tapling, an industry consultant who notes that "where there is confusion, there is opportunity" in the rapidly evolving AI landscape. Colin Parsons, head of fraud product strategy at Nasdaq Verafin, observes that bad actors are increasingly personalizing payment cons and better mimicking trusted contacts to make their schemes more convincing, even against savvy individuals.

Forrester analyst Lily Varon highlights the convergence of multiple technological trends, explaining how AI improves deepfake quality while the industry simultaneously moves away from traditional password authentication. Financial institutions are increasingly partnering with technology providers like Reality Defender—a New York company using AI to detect deepfakes—and Unit 21, which helps track fraudulent transactions.

Legal and Financial Mechanisms

The financial system continues grappling with push-payment fraud, where criminals trick victims into voluntarily sending money to fraudulent accounts. This particular challenge has drawn congressional attention as stories of victims facing substantial losses have proliferated. The problem has intensified with the adoption of faster payment systems, including the Federal Reserve's FedNow instant payments platform, launched in 2023.

In response to these threats, the Fed has implemented several anti-fraud enhancements to FedNow. According to a January 15 press release, the system now includes features allowing users to verify beneficiary names and "pre-check" receiver accounts before sending payments. These measures represent the financial system's attempt to balance efficiency with security in an increasingly digital payments environment.

International Implications and Policy Response

The challenges extend beyond individual institutions to systemic vulnerabilities in information sharing protocols. Federal Reserve Vice Chair for Supervision Michelle Bowman highlighted how legal barriers prevent banks from sharing critical fraud prevention information, even when such sharing could strengthen the entire system's resilience.

Biometric authentication methods, including FIDO passkeys that link cryptographic keys to physical attributes like fingerprints or facial scans, may offer partial solutions. However, as the industry experiments with password-free authentication and agentic commerce, fundamental questions about payment liability and security remain unresolved. The international nature of payment systems means these challenges require coordinated global responses, not just national solutions.

Sources

This report draws on statements from payments industry experts, Federal Reserve publications and speeches, surveys from the Association for Financial Professionals, and information from financial technology companies working in fraud prevention. Sources include official press releases and public statements from January 2025 regarding FedNow security enhancements and regulatory modernization efforts.