Hyper-personalized authentication: digital transformation’s role in scam prevention

As fraudsters weaponize AI, financial institutions (FIs) face an evolving threat landscape: Attacks like Zelle fraud and deepfake-powered investment, employment, and romance scams are becoming more sophisticated and widespread. FIs on a journey to accelerate their digital transformation efforts must navigate security solutions that protect customers from today’s sophisticated scams while delivering seamless customer experiences, writes Entersekt's Chief Product Officer, Pradheep Sampath.

Since fraud losses increased by 25% last year, according to the latest Federal Trade Commission statistics, we can see that traditional authentication methods are failing to address fraudsters’ evolving tactics. FIs that are struggling to get it right could be jeopardizing the safety of customers’ transactions and, in the future, potentially break their trust.

Modern authentication strategies that focus on what each customer wants — and needs — can provide FIs with the competitive edge to stay ahead of evolving fraud threats, build customer trust and loyalty, and strengthen their digital transformation efforts.

FIs that are battling to keep up their digital transformation momentum are not alone in their struggle. Digital banking provider Q2, in their 2025 Retail Banking Trends and Priorities Report, found that only 7% of institutions are fully achieving their digital transformation goals.

So, what’s still holding banks and credit unions back from modernizing their systems and embracing emerging technology? In some cases, legacy technology is an ongoing impediment, especially at larger FIs where bigger wheels take longer to turn. Unfortunately though, these systems also create siloed data, another wrench in the works for banking modernization efforts.

Consequently, slowed progress can increase the gap between an FI’s current capabilities and what’s needed to succeed and grow in today’s competitive banking landscape.

Per the latest Federal FinCEN report, the number of account takeover (ATO) attacks in the U.S. has increased by over 65% over the past two years! A recent PYMNTS report also supports this notion, finding that 42% of FIs experienced an increase in their fraud rates in 2024.

To deliver a dynamic authentication approach that combats modern scams, banks, smaller FIs and credit unions need to shift from digitization to the next evolutionary step — AI-powered, data-driven fraud prevention technology. This shift could enable more secure and tailor-made customer experiences.

By putting a stronger focus on modern, user-centric technology, banks can get closer to their customers again.

The need to balance security and flexibility in authentication is not a new challenge for banks. But getting the mix right is still vital. In payments, for instance, strong security is essential, yet those security measures which prevent unauthorized access, by the same token, should not cause unnecessary friction for legitimate cardholders. In fact, per PYMNTS: 47% of retailers cite “false declines as having a severely negative impact on customer satisfaction.”

It can be a tricky balance to reach. Because, as Datos Insights points out: 65% of U.S. consumers are likely to abandon an e-commerce transaction when online security seems lacking. And while the growing risk of scams is “driving businesses to implement more robust authentication methods,” Datos also shares that fraud prevention priorities should be met “while balancing user experience.”

A data-driven fraud prevention approach can help FIs tailor customer experience. Using risk signals, like behavioral biometrics (in a privacy preserving manner), FIs can detect whether an activity on a customer’s bank account is unusual or suspicious. The risk engine then provides the appropriate authentication challenge to prevent unauthorized access or transactions, without disrupting those that are legitimate.

Banks that continue to rely on outdated or rigid authentication strategies are at risk of not only weakening their ability to safeguard customers from today’s fraud, but also limiting their customers’ choices. And this inflexibility could impact loyalty and lifetime customer value.

According to Datos Insights, customers often prefer authentication methods they feel comfortable with and trust. Interestingly, they also highlight that up to 80% of consumers lean towards “security mechanisms they can actively control versus passive or invisible security measures” illustrating the importance of giving them a choice, and thereby more control.

By hyper-awareness, I mean an awareness of what “right” looks like for a given customer – ranging from how they type, scroll, swipe, what devices they use, what locations they frequent, and their transaction patterns — basically creating a blueprint for a legitimate transaction.

This hyper-awareness of what “right” looks like is developed over time and can vary considerably based on a customer’s individual characteristics. So, any set of rules – static, state-aware or ML-powered models – needs to take all of these factors into consideration. And this is what allows us to develop early warning signals to predict and prevent fraud.

It’s also important that this is done in a 100% privacy-preserving manner, while making accommodations for normal patterns of life like travel and special purchases. For FIs, all of this awareness can and should be used to provide frictionless experiences to legitimate customers.

In my view, hyper-personalization can add momentum to an FI’s digital transformation efforts by boosting customer satisfaction, reducing fraud, driving higher conversion rates, and improving an FI’s competitiveness.

In an era of rapidly evolving technology like GenAI, scam fraud is only going to get more sophisticated and dangerous. Fraud prevention solutions must keep up. At Entersekt, we’ve gone from verifying a customer's presence (in the initial phishing era) to confirming their intent (with attack vectors like account takeovers and vishing) to now asking: ‘Should the customer actually be taking this action?’ (for today's social engineering scams).

Traditional authentication methods only address the first two situations. But FIs need solutions that consider all three — like risk-based authentication — without overloading fraud teams with unnecessary noise or frustrating legitimate users.

At Entersekt, we build a rich picture of a bank’s customers and use risk intelligence to protect them from scams, while removing friction.

By upgrading to Entersekt’s modern, trusted authentication solutions, FIs can prevent their customers from falling victim to evolving fraud scams, get closer to their customers, and strengthen their digital transformation efforts. Learn more about our approach to digital banking and payment fraud prevention here.