Kenya banks snoop on staff with AI in war against fraud

In its annual review of technology developments in the banking sector, the Central Bank of Kenya (CBK) noted that lenders in the country are now using AI to “improve operational efficiencies, predict customer behaviour, and manage risks more effectively,” including through keeping a keen eye on staff communication.

“Banks have deployed AI solutions to monitor electronic communications by staff in the trading room to detect outliers and irregularities,” CBK said in the latest Annual Bank Supervision Report.

This comes as local banks report a surge in losses attributed to fraud and confirmed attempts by both internal and external actors, and amidst an increase in lawsuits faulting the lenders for abetting fraud on customers.

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Leading lenders, including KCB Group, Equity Group, Co-operative Bank of Kenya, NCBA Group, Stanbic Holdings, and Absa Bank Kenya have all reported an increase in fraud attempts, forcing them to step up their vigilance to thwart such incidents.

Absa, for instance, said it foiled attempts to defraud it over Sh498 million last year, but lost Sh48 million to fraudsters. In 2022, the lender lost over Sh107 million to fraud but recovered just half of it.

At the same time, a handful of banks, including Equity, Co-operative, EcoBank, and Standard Chartered Bank Kenya have recently been involved in court battles with their clients who accused them of abetting fraud on their accounts, allegedly enabled by the bank’s staff.

This has pushed banks to look within to thwart fraud. KCB, for example, has revealed that it handled 48 disciplinary staff cases relating to fraud last year, resulting in the dismissal of 22 employees, while 26 resigned as investigations progressed.

The growing fraud threats and involvement of staff appears to have prompted banks to turn to the first-growing AI technologies to monitor their staff to help detect and prevent any possible fraud attempts, or accidental errors which could make them susceptible to fraud.

Banks that have already published their annual sustainability reports have admitted to deploying AI to combat fraud, but did not divulge into the specificity of how and where those technologies were deployed.

“Our Financial Crime Compliance team continues to proactively identify, prevent potential fraud, terror financing and money laundering activities using next-generation surveillance, financial crime monitoring infrastructure and machine learning,” said Standard Chartered bank in its latest sustainability report made public this week.

Stanbic bank, which also published its sustainability report this week, said it leveraged “artificial intelligence and other advanced technologies to improve risk assessment, scenario analysis and decision-making processes.”

Other lenders are yet to publish their sustainability reports for 2023.

In addition to monitoring staff communication to mitigate fraud risk, lenders are also using AI to monitor their staff’s network use patterns, work hours and approved devices on the network to mitigate cyber threat risks from internal actors.

“Several institutions have deployed machine learning-powered solutions to detect cases of potential insider threats as well as external cybersecurity threats,” CBK said.

NCBA bank said it spent $31 million (Sh4 billion) to upgrade its systems to “fortify its cybersecurity infrastructure,” coming amidst the heightened attacks on the financial industry players.

This use of AI is generally a shift from earlier years, when the use of technology in the banking industry was limited to customer support and predicting volatile market trends and outcomes.

In 2022, CBK said banks used AI only to “to improve customer service and support” and to help predict “market fluctuations” that are traditionally challenging to perform by analysts.

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Now, in addition to fraud and cyber threat risk mitigation, the lenders have also stepped AI use into segmenting their customers for more personalised and tailored product targeting, as well as in improving customer screening to combat money laundering and financing of terrorism.

Using AI to enhance customer service in the industry has also evolved into chatbots, which banks are now using to “streamline digital banking and improve customer onboarding and transactions on internet and mobile banking platforms,” CBK said.

The artificial intelligence industry in Kenya has been receiving growing funding from investors over the last few years, with total investments injected into the sector hitting Sh1.95 billion last year, beating Nigeria’s Sh377 million.

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