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Kenyan banks are increasingly employing artificial intelligence (AI) to monitor their employees as part of a comprehensive strategy to combat fraud in the sector. This is according to the Central Bank of Kenya’s bank supervision 2023 annual report released recently.

This advanced technology, the report says, is helping banks detect suspicious activities and potential security breaches, ensuring the integrity and safety of banking operation, in a time the sector is facing growing challenges related to fraud. AI systems are known to analyze vast amounts of data in real-time, identify patterns, and flag anomalies that might indicate fraudulent behavior. This includes monitoring transactions, employee activities, and communication channels.

Commercial banks are also using AI to enhance operational efficiency, forecast customer behaviour, and better manage risks, including monitoring staff communications. behavior, both online and offline. This includes tracking login times, access to sensitive information, and any unauthorized attempts to alter or access data. The goal is to prevent internal fraud and ensure that employees adhere to security protocols.

“Banks have deployed AI solutions to monitor electronic communications by staff in the trading room to detect outliers and irregularities,” the CBK report stated. “Banks also subscribe to fraud risk management solutions for payment cards provided by international card schemes and for account transactions. These solutions provide a risk score that predicts the potential of fraud in an authorization attempt.”

AI tools are helping banks analyze communication channels such as emails and messages for signs of fraud collusion or other suspicious activities by scanning for keywords or patterns. AI algorithms are capable of scrutinizing every transaction processed by a bank, looking for irregularities such as unusually large withdrawals or transfers. These systems can also compare current transactions against historical data to identify deviations from normal behavior.

With increasing fraud losses and legal issues arising from customers accusing bank staff of complicity, major banks such as KCB Group, Equity Group and Absa Bank are adopting AI to monitor employee communications and behaviors to identify irregularities and potential fraud.

AI provides a more robust and proactive approach to security, allowing banks to detect and respond to threats more quickly than traditional methods. According to CBK’s report, several Kenyan banks have deployed ML-powered solutions to detect cases of potential insider threats as well as external cybersecurity threats. “Insider threats are monitored by collecting and analyzing data on network use patterns, work hours, and approved devices on the network,” says the report. “External threats are monitored by identifying outliers or unusual activities in customers’ transaction patterns. Moreover, cybersecurity tools such as Security Incident and Event Management (SIEM) are ML-enabled to automatically detect and respond to threats by quarantining suspicious processes, applications, and devices on the network.”

By automating the monitoring process, AI reduces the workload on human analysts and enables them to focus on investigating flagged incidents. Preventing fraud not only protects the bank’s assets but also reduces the financial and reputational costs associated with fraudulent activities.

According to the 2022 Kenya Bankers Association report on AI, with its power to predict future scenarios by analyzing past behaviors, the technology helps banks predict future outcomes and trends. “This helps banks to identify fraud, detect anti-money laundering pattern and make customer recommendations. Money launderers, through a series of actions, portray that the source of their illegal money is legal,” the report states. “With its power of Machine Learning and Cognition, AI identifies these hidden actions and helps save millions for banks. Similarly, AI is able to detect suspicious data patterns among humungous volumes of data to carry out fraud management.”

Fraud is a growing concern in Kenya’s financial services sector. According to TransUnion Africa, a credit reporting agency, Kenyan banks lose about $130 million to cybercriminals yearly, mostly through loan stacking and identity theft.  Various top lenders such as Equity Bank Limited, Cooperative Bank of Kenya, Eco Bank, and Standard Chartered have been caught up in fraud scams. Last year, Absa Bank Kenya disclosed the loss of Sh107.7 million to fraud in 2022, highlighting the prevalence of the crime in Kenya’s banking sector.

As Kenyan banks continue to embrace AI technology, the focus on fraud prevention is becoming more sophisticated. The ability to monitor transactions, employee activities, and communications in real-time is a valuable asset in safeguarding financial institutions against internal and external threats.

However, there’s a caveat. As Kenyan banks deploy AI tools to monitor employees, they often violate the country’s data privacy law which protects users against collection and analysis of their data without consent. Even as the CBK encourages banks to use such tools to protect the reputation of the industry, it will have to address the ethical implications of data collection and ensure that the right fraud prevention measures are implemented responsibly and transparently.