By Eliano Marques, Global Director of Data Science, Think Big Analytics, A Teradata Company
Fighting fraud is a very sophisticated challenge, with investigations into money laundering increasing significantly year upon year, and many banks paying large fines for the failure to deploy sufficient anti-fraud measures. Earlier this year, one of the largest tier one global banks was fined more than £500m for what has commonly become known as ‘anti-money laundering failings’ for transactions that were highly suggestive of fraudulent activity.
Fraudsters are becoming more and more advanced, but luckily, artificial intelligence (AI) and deep learning are giving banks’ fraud investigation teams the ability to investigate crime in real-time, tackling complex, highly varying functions.
Having a system that is capable of learning very quickly and understanding new patterns that are not in line with genuine transactions is a crucial aspect of fighting fraud. Trying to recognise these patterns may be fairly complex and highly nonlinear, but this is a field where deep learning and AI shine by drawing quick conclusions against these multifaceted connections.
Google’s Alpha Go is a good generic example of bringing the initiative to the next level – implementing a deep learning type of model that learnt from its opponent and adjusted behaviour while playing against new opponents to win. It’s this same model is now being applied to investigate fraud in banking, with these new algorithms beginning to win the battle with fraudsters.
Deep Learning is Key
In the banking world, there are a few key areas where AI and deep learning can help. Deep learning can recover complex patterns in data, which can be particularly useful in uncovering fraud.
Deep learning sets itself apart from conventional learning techniques with its very specific techniques and ability to discover complex patterns and has proven a great tool for detecting these types of intricate connections.
The focus must be on finding anomalies in the data. For example, for every transaction that is executed, it’s vital to assess historical transactions to detect which customer transactions do not fit into a typical history from a purely behavioural perspective.
However, we are not able to learn from purely historical data quickly enough because as soon as we are able to figure out which transactions are fraudulent, fraudsters adjust immediately and try a different approach.
As a technical issue, fraud is essentially like a game theory type problem in that the strictly dominant strategy will always adapt to survive and find new ways of attempting to succeed in the same activity. This is where real-time engines are key, and where banks can implement game-changing solutions in the fight against fraud.
AI Driven Real-Time Fraud Solutions: Banking’s Secret Weapon
Many businesses are struggling with legacy technology that simply doesn’t deliver the insight needed to fight suspicious activity, making them unable to move quickly enough to analyse transactions and to identify money laundering and other fraudulent activity.
However, some banks are developing real-time solutions in the form of state of the art, AI driven detection engines. These new engines use machine learning to hook advanced analytics blueprints up to incoming transactions.
Having a re-enforcement type of algorithm is of vital importance – it’s an algorithm that is capable of learning in a fast paced environment and adjusting to fraudsters’ techniques in real-time.
When in place, AI can give responses back to score transactions using deep learning algorithms, delivering immediately available and actionable insight in real-time. So, when a customer is trying to make a purchase using a debit or credit card, the detection engine can score transactions within 0.3 seconds, flagging fraud or approving genuine transactions without interruption to purchases.
While it’s great for customers, it’s also very beneficial for banks. It’s important to remember that while extremely impactful, fraud cases are still relatively rare. When fraud detection methods aren’t sophisticated enough to keep up, they may start to flag up to 99% of all transactions as potentially fraudulent.
Often, it’s the case that only 0.5 per cent of transactions are fraudulent, leaving fraud investigation teams tasked with the highly repetitive and time-consuming work of investigating what end up being ‘false positives’. When better detection is in place, false positives are significantly reduced, leaving teams free to be deployed on higher value, more meaningful work.
Beyond reducing false positives, these systems are catching more of the fraud that is actually occurring, and also meeting the prevention measures set by regulators. They are also helping banks avoid hefty fines and business lost through reputational damage to the brand.
While all banks are facing the same challenges surrounding fraud, it’s clear that some are making better use of the new analytic technologies available to increase the efficiency with how they investigate fraud and comply with standards. Amid a landscape where banks often feel hampered by the rising costs of regulation, it’s safe to say that the tactical use of AI and machine learning will likely soon become a more common fixture in the war against fraud.
Oil extends losses as Texas prepares to ramp up output
By Ahmad Ghaddar
LONDON (Reuters) – Oil prices fell from recent highs for a second day on Friday as Texas energy firms began to prepare for restarting oil and gas fields shuttered by freezing weather.
Brent crude futures were down $1.16, or 1.8%, to $62.77 per barrel, by 1150 GMT, while U.S. West Texas Intermediate (WTI) crude futures fell $1.42, or 2.4%, to $59.10 a barrel.
Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude oil production and 21 billion cubic feet of natural gas, according to analysts.
Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.
However, firms in the region on Friday were expected to prepare for production restarts as electric power and water services slowly resume, sources said.
“The market was ripe for a correction and signs of the power and overall energy situation starting to normalise in Texas provided the necessary trigger,” said Vandana Hari, energy analyst at Vanda Insights.
Oil fell despite a surprise fall in U.S. crude stockpiles in the week to Feb. 12, before the freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]
The United States on Thursday said it was ready to talk to Iran about both nations returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons.
While the thawing relations could raise the prospect of reversing sanctions imposed by the previous U.S. administration, analysts did not expect Iranian oil sanctions to be lifted anytime soon.
“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” StoneX analyst Kevin Solomon said.
(Additional reporting by Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; editing by Jason Neely)
Analysis: Carmakers wake up to new pecking order as chip crunch intensifies
By Douglas Busvine and Christoph Steitz
BERLIN (Reuters) – The semiconductor crunch that has battered the auto sector leaves carmakers with a stark choice: pay up, stock up or risk getting stuck on the sidelines as chipmakers focus on more lucrative business elsewhere.
Car manufacturers including Volkswagen, Ford and General Motors have cut output as the chip market was swept clean by makers of consumer electronics such as smartphones – the chip industry’s preferred customers because they buy more advanced, higher-margin chips.
The semiconductor shortage – over $800 worth of silicon is packed into a modern electric vehicle – has exposed the disconnect between an auto industry spoilt by decades of just-in-time deliveries and an electronics industry supply chain it can no longer bend to its will.
“The car sector has been used to the fact that the whole supply chain is centred around cars,” said McKinsey partner Ondrej Burkacky. “What has been overlooked is that semiconductor makers actually do have an alternative.”
Automakers are responding to the shortage by lobbying governments to subsidize the construction of more chip-making capacity.
In Germany, Volkswagen has pointed the finger at suppliers, saying it gave them timely warning last April – when much global car production was idled due to the coronavirus pandemic – that it expected demand to recover strongly in the second half of the year.
That complaint by the world’s No.2 volume carmaker cuts little ice with chipmakers, who say the auto industry is both quick to cancel orders in a slump and to demand investment in new production in a recovery.
“Last year we had to furlough staff and bear the cost of carrying idle capacity,” said a source at one European semiconductor maker, who spoke on condition of anonymity.
“If the carmakers are asking us to invest in new capacity, can they please tell us who will pay for that idle capacity in the next downturn?”
The auto industry spends around $40 billion a year on chips – about a tenth of the global market. By comparison, Apple spends more on chips just to make its iPhones, Mirabaud tech analyst Neil Campling reckons.
Moreover, the chips used in cars tend to be basic products such as micro controllers made under contract at older foundries – hardly the leading-edge production technology in which chipmakers would be willing to invest.
“The suppliers are saying: ‘If we continue to produce this stuff there is nowhere else for it to go. Sony isn’t going to use it for a Playstation 5 or Apple for its next iPhone’,” said Asif Anwar at Strategy Analytics.
Chipmakers were surprised by the panicked reaction of the German car industry, which persuaded Economy Minister Peter Altmaier to write a letter in January to his counterpart in Taiwan to ask its semiconductor makers to supply more chips.
No extra supplies were forthcoming, with one German industry source joking that the Americans stood a better chance of getting more chips from Taiwan because they could at least park an aircraft carrier off the coast – referring to the ability of the United States to project power in Asia.
Closer to home, a source at another European chipmaker expressed disbelief at the poor understanding at one carmaker of how it operates.
“We got a call from one auto maker that was desperate for supply. They said: Why don’t you run a night shift to increase production?” this person said.
“What they didn’t understand is that we have been running a night shift since the beginning.”
NO QUICK FIX
While Infineon, the leading supplier of chips to the global auto industry, and Robert Bosch, the top ‘Tier 1’ parts supplier, both plan to commission new chip plants this year, there is little chance of supply shortages easing soon.
Specialist chipmakers like Infineon outsource some production of automotive chips to contract manufacturers led by Taiwan Semiconductor Manufacturing Co Ltd (TSMC), but the Asian foundries are currently prioritising high-end electronics makers as they come up against capacity constraints.
Over the longer term, the relationship between chip makers and the car industry will become closer as electric vehicles are more widely adopted and features such as assisted and autonomous driving develop, requiring more advanced chips.
But, in the short term, there is no quick fix for the lack of chip supply: IHS Markit estimates that the time it takes to deliver a microcontroller has doubled to 26 weeks and shortages will only bottom out in March.
That puts the production of 1 million light vehicles at risk in the first quarter, says IHS Markit. European chip industry executives and analysts agree that supply will not catch up with demand until later in the year.
Chip shortages are having a “snowball effect” as auto makers idle some capacity to prioritize building profitable models, said Anwar at Strategy Analytics, who forecasts a drop in car production in Europe and North America of 5%-10% in 2021.
The head of Franco-Italian chipmaker STMicroelectronics, Jean-Marc Chery, forecasts capacity constraints will affect carmakers until mid-year.
“Up to the end of the second quarter, the industry will have to manage at the lean inventory level,” Chery told a recent Goldman Sachs conference.
(Douglas Busvine from Berlin and Christoph Steitz from Frankfurt; Additional reporting by Mathieu Rosemain and Gilles Gillaume in Paris; Editing by Susan Fenton)
Aussie and sterling hit multi-year highs on recovery bets
By Tommy Wilkes
LONDON (Reuters) – The Australian dollar rose to near a three-year high and the British pound scaled $1.40 for the first time since 2018 on optimism about economic rebounds in the two countries and after the U.S. dollar was knocked by disappointing jobs data.
The U.S. currency had been rising in recent days as a jump in Treasury yields on the back of the so-called reflation trade drew investors. But an unexpected increase in U.S. weekly jobless claims soured the economic outlook and sent the dollar lower overnight.
On Friday it traded down 0.3% against a basket of currencies, with the dollar index at 90.309.
The Aussie rose 0.8% to $0.784, its highest since March 2018. The currency, which is closely linked to commodity prices and the outlook for global growth, has been helped by a recent rally in commodity prices.
The New Zealand dollar also gained, and was not far off a more than two-year high, while the Canadian dollar rose too.
Sterling rose to $1.4009 on Friday, an almost three-year high amid Britain’s aggressive vaccination programme.
Given the size of Britain’s vital services sector, analysts say the faster it can reopen the economy, the better for the currency. Sterling was also helped by better-than-expected purchasing managers index flash survey data for February.
The U.S. dollar has been weighed down by a string of soft labour data, even as other indicators have shown resilience, and as President Joe Biden’s pandemic relief efforts take shape, including a proposed $1.9 trillion spending package.
Despite the recent rise in U.S. yields, many analysts think they won’t climb too much higher, limiting the benefit for the dollar.
“Our view remains that the Fed will hold the line and remain very cautious about tapering asset purchases. We think it will keep communicating that tightening is very far off, which should dampen pro-dollar sentiment,” said UBS Global Wealth Management strategist Gaétan Peroux and analyst Tilmann Kolb.
ING analysts said “the rise in rates will be self-regulating, meaning the dollar need not correct too much higher”.
They see the greenback index trading down to the 90.10 to 91.05 range.
The euro rose 0.4% to $1.2134. The single currency showed little reaction to purchasing manager index data, which showed a slowdown in business activity in February. However, factories had their busiest month in three years, buoying sentiment.
The dollar bought 105.39 yen, down 0.3% and a continued retreat from the five-month high of 106.225 reached Wednesday.
(Editing by Hugh Lawson and Pravin Char)
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