Artificial Intelligence, Blockchain Can Help Banking Sector, NBFCs Prevent Cyber Frauds

With cyber fraud surging across India's banking and NBFC sectors, financial institutions face growing threats from phishing, identity theft, and sophisticated scams. In an exclusive conversation with Bizz Buzz, Shikhar Aggarwal, Chairman of BLS E-Services, highlights the critical role of AI, machine learning, and blockchain in combating financial fraud. He discusses regulatory frameworks, customer education, and advanced fraud detection tools that can fortify digital security. As cyber threats evolve, the ITeS sector emerges as a key player in ensuring financial resilience, helping banks and NBFCs stay ahead through real-time monitoring, data analytics, and proactive risk management strategies

What trends and challenges are banks and NBFCs currently facing in the fight against cyber fraud? How can the ITeS sector help in addressing these issues?

Banks and NBFCs in India are grappling with a surge in cyber fraud, driven by the increasing digitisation of financial services and the adoption of online banking platforms. The number of bank frauds witnessed a significant on-year increase in the first half of the current fiscal to 18,461 cases and the amount involved jumped more than eight-fold to Rs21,367 crore, according to RBI data during 2023-24 and 2024-25 so far.

Key challenges include sophisticated phishing attacks, identity theft, malware, and social engineering scams. Additionally, the lack of cybersecurity awareness among customers and the rapid evolution of fraud tactics make it difficult for institutions to keep pace.

The ITeS (Information Technology Enabled Services) sector can play a pivotal role in addressing these challenges. By leveraging advanced technologies such as artificial intelligence (AI), machine learning (ML), and blockchain, ITeS providers can help banks and NBFCs develop robust fraud detection systems. For instance, AI-driven analytics can identify unusual transaction patterns in real time, while blockchain can enhance the security of financial transactions. ITeS firms can also offer 24/7 monitoring services, cybersecurity training, and incident response solutions to mitigate risks effectively.

What regulatory measures and industry best practices should banks and NBFCs adopt to better safeguard themselves against fraud?

Regulatory measures and industry best practices are critical to strengthening the cybersecurity framework of banks and NBFCs. The RBI has already introduced guidelines such as the Cyber Security Framework for Banks and the implementation of multi-factor authentication (MFA) to enhance security. However, institutions must go beyond compliance and adopt proactive measures.

Best practices include conducting regular cybersecurity audits, implementing end-to-end encryption for all transactions, and establishing a dedicated cybersecurity task force. Banks should also collaborate with regulatory bodies and industry peers to share threat intelligence and stay updated on emerging risks. Additionally, adopting a zero-trust architecture, where every user and device is continuously verified, can significantly reduce vulnerabilities. Regular employee training and customer awareness programs are equally important to create a culture of security.

Given the rapid pace of technological innovation, what is the future of ITeS in the banking and NBFC sectors? How can these institutions stay ahead of evolving fraud tactics?

The future of ITeS in the banking and NBFC sectors is poised for significant growth, driven by the increasing demand for advanced cybersecurity solutions and fraud prevention tools. As financial institutions continue to digitise their operations, ITeS providers will play a crucial role in enabling secure and seamless customer experiences. Emerging technologies such as quantum computing, AI, and IoT (Internet of Things) will further revolutionise the sector by enabling faster and more accurate fraud detection.

To stay ahead of evolving fraud tactics, banks and NBFCs must adopt a proactive approach by investing in cutting-edge technologies and fostering innovation. Collaborating with companies like us or other ITeS providers can help institutions access the latest tools and expertise. Additionally, leveraging big data analytics and real-time monitoring systems can enable early detection of fraudulent activities. Continuous upskilling of employees and adopting a customer-centric approach to cybersecurity will also be key to maintaining trust and resilience.

How can banks use data analytics and other tools to identify and prevent fraudulent patterns of behavior?

Data analytics is a powerful tool for identifying and preventing fraudulent behavior. By analysing large volumes of transaction data, banks can detect anomalies and patterns that indicate potential fraud. For example, sudden spikes in transaction amounts, unusual login locations, or frequent changes in account details can be red flags.

Machine learning algorithms can enhance this process by continuously learning from new data and improving the accuracy of fraud detection. Banks can also use predictive analytics to assess the likelihood of fraud based on historical data and customer behavior. Integrating these tools with real-time monitoring systems enables banks to respond swiftly to suspicious activities, minimising losses. Additionally, leveraging big data from external sources, such as social media and public records, can provide a more comprehensive view of potential risks.

How can banks ensure that their customers are educated about safe banking practices and fraud prevention?

Educating customers about safe banking practices is essential to reducing the risk of fraud.

We at BLS E-Services work with major PSU banks to educate customers through multiple channels, such as SMS alerts, email campaigns, and mobile apps, to disseminate information about common fraud tactics and preventive measures. We along with banks also conduct interactive workshops to help raise awareness among customers. We also collaborate with government initiatives and drive the Digital India campaign to amplify these efforts.

In addition, banks should provide clear guidelines on creating strong passwords, recognising phishing attempts, and securing personal devices. Incorporating cybersecurity tips into customer onboarding processes and regularly updating customers on new threats can further reinforce safe banking habits.

How can banks strengthen their internal controls and risk management systems to detect and prevent fraudulent activities?

Banks can strengthen their internal controls and risk management systems by adopting a multi-layered approach to fraud prevention.

This includes implementing robust access controls, such as role-based permissions and MFA, to limit unauthorised access to sensitive data. Regular audits and vulnerability assessments can help identify and address potential weaknesses in the system.

We work with major PSU banks to update the records and on re-KYC which helps in detecting fraud and contain fraud-related activities. In addition to this, advanced analytics and AI-driven tools can enhance risk management by providing real-time insights into transaction patterns and flagging suspicious activities. Banks should also establish a centralised fraud monitoring unit to coordinate efforts across departments and ensure a swift response to incidents. Additionally, fostering a culture of accountability and transparency within the organisation can help deter internal fraud.

how does BLS E-Services perceive the current gaps in fraud detection systems, and what technological advancements can be implemented to enhance these processes?

I would not say gaps rather the change in technology is so rapid that financial institutions need to keep up the pace with it. We identify several critical lags in current fraud detection systems, including reliance on rule-based systems that fail to adapt to evolving fraud tactics, delayed response times, and insufficient integration of data across platforms. Many systems cannot also analyse unstructured data, such as social media activity, which can provide early warning signs of fraudulent behavior.

To address these lags, we advocate for the adoption of advanced technologies such as AI and ML, which can analyse vast amounts of data in real time and identify anomalies with greater accuracy.

We are also implementing the same at BLS E-Services as well. Also emphasises the importance of predictive analytics, which can forecast potential fraud risks based on historical data and behavioral patterns. Additionally, integrating blockchain technology can enhance transparency and security in financial transactions, reducing the risk of tampering. By adopting these advancements, banks and NBFCs can significantly improve their fraud detection capabilities.