The Impact of digitalization on fraud prevention and detection in the Sri Lankan banking industry

Abstract

The banking industry in Sri Lanka has been rapidly digitalized and this has completely revolutionized the way through which financial services are delivered and at the same time introduced new unprecedented fraud risks, which have not been equally met by the older strategies of preventing them. The study researches the effects of digitalization on the effectiveness of fraud prevention and detection in Sri Lankan commercial banks via identification of vulnerabilities and formulation of strategic recommendations regarding improved security capabilities. With quantitative research methodology, the study gathered data of 518 customers with digital banks and 300 working with the banking sector in major commercial banks using structured surveys. This study employed the Technology-Organization-Environment (TOE) model to review the complex relationships between digital transformation programs and fraud prevention efficiency through lenses of technology capacity, organization preparedness, and an environment. The important findings explain that there is an urgent gap between the rate of digital banking adoption and the ability to protect it, and it means that even traditional rule-based fraud detection systems are only 45 percent effective against modern threats and have a false positive rate of 15 percent. The study also sees considerable room to be improved with improved technologies, as the artificial intelligence and machine learning systems performed 85 percent better in terms of detection as well as biometric authentication can prevent account takeover fraud by 99.9 percent. The research has concluded that the organizational elements, such as staff training and customer education, are rather important factors of successful fraud prevention, and well- trained institutions achieve better results than institutions found only on technological afterthoughts by 50 percent better. When done with privacy protection and an optimal user experience, 94 percent of customers accept increased security precaution. Research recommendations suggest the following: multi-factor authentication and AI-enabled detection systems should be implemented right away, medium-step installation of end-to-end biometric-based authentication and predictive analytics systems, and long-term implementation of the capability to share information across banks in a cross-bank environment. The presented three-phased implementation framework will systematically guide the process of improving fraud prevention by ensuring the efficiency of operations and customer satisfaction. This study will add practical evidence-based solutions that can be adopted in Sri Lankan banks in order to face the fraud prevention issue and keep on with the digital development and achieve the competitive edge in the new financial services scene