Generative AI continues to be a fantastic fraud accelerator. ChatGPT’s latest image generator is just the latest proof point. It’s no surprise that technology designed to help everyday users work faster also has very applicable use cases for bad actors looking to make their schemes more legitimate and convincing. Doriel Abrahams, Principal Technologist at Forter, explores the issues with retail fraud and how companies can fight back.
The retail sector is seeing a huge increase in sophisticated fraud schemes due to the advancements in Generative AI technology. Each new AI innovation doesn’t just come with immense opportunities for retailers in terms of enhancements – but they’re also creating very sophisticated tools for potential fraudsters to take advantage of. And indeed they are.
Recent developments in AI image generation is just one example of this. On the one hand, these technologies are positively revolutionising retail operations as we know them; through streamlined content creation and business processes. However, they are also ripping apart traditional processes that were key for retailers to spot fraudulent activity.
The weaponisation of GenAI
Today’s AI image generators can create imagery that looks like realistic photographs or documents from just simple text prompts with incredible precision. This image creation can also extend to official-looking documents with accurate formatting, logos, timestamps and even usable barcodes or QR codes. Beyond creating entirely new images, these tools can also manipulate photos – altering pictures of received items to make a piece of crockery appear cracked, food look undercooked or products seem damaged.
Impressive as this new innovation is, this technology obviously has really concerning implications for return fraud, where artificially generated receipts and purchase documents are practically indistinguishable from genuine versions. Unlike more traditional forgeries that often contained obvious human errors and flaws, AI-generated fakes eliminate many signs of forgery. And with this in mind, how are retailers going to be able to spot these?
Fraudulent activity extends beyond returns
The threat landscape and fraudulent activity is also extending beyond just returning items. Other examples include creating fake documentation to claim warranty service for out-of-warranty products, generating receipts with inflated purchase prices to secure larger refunds to gift cards, enabling internal fraud through fabricated expense receipts and producing convincing payment confirmations as part of larger social engineering attacks. The financial implications are staggering. Industry analysts already estimate return fraud costs in the billions annually, and this figure is only set to grow as these AI tools become even more accessible and powerful.
The customer experience dilemma
Perhaps the most challenging aspect of this evolution in fraud for retailers is its impact on legitimate customer experiences. To mitigate fraud, retailers are having to implement more extensive verification procedures – and honest customers inevitably will face increased friction during returns and exchanges.
This creates a significant challenge – implementing stricter verification processes risks alienating these valuable customers and potentially damaging brand loyalty.
AI needs to be fought with AI
The solution isn’t about regressing to manual processes or accepting compromised customer experiences.
Instead, forward-thinking retailers are deploying their own AI systems to mitigate tech-enabled fraud. By analysing entire customer journeys and spotting patterns rather than isolated transactions, advanced AI systems can identify suspicious patterns without creating unnecessary friction for legitimate customers. These sophisticated systems can detect subtle inconsistencies invisible to both human reviewers and rule-based systems.
The need to balance security with experience
The relationship between retailers and customers has always been based on trust and will continue to be. Today’s Generative AI challenge requires finding the right balance between fraud prevention and customer experience.
Successful retailers will increasingly view fraud prevention not as a cost centre but as an essential part of customer experience – one that also requires sophisticated technological solutions to match equally sophisticated threats.
