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AI FRAUD DETECTION IN LATIN AMERICA BEST PRACTICES 2025

AI Fraud Detection in Latin America Best Practices 2025

March 11, 2025

Fraud is one of the most significant—and costly—risks facing financial institutions and payments providers today, particularly in Latin America, where the rapid growth of digital payments has created new vulnerabilities. Fraudulent payment card transactions globally are projected to surpass $36 billion in 2024, according to the Nilson Report. Latin America, with its burgeoning fintech ecosystem and increasing use of e-commerce, is disproportionately affected, ranking among the regions with the highest rates of card-not-present (CNP) fraud globally.

The situation is especially challenging in countries like Brazil and Mexico, where digital transformation is accelerating but fraud attempts are growing in sophistication. Beyond the direct financial impact, fraud also brings reputational damage that can erode customer trust—an essential factor in markets where loyalty is key to retaining users.

The High Cost of Fraud in Latin America

The financial cost of fraud is often underestimated. A 2024 LexisNexis study revealed that every dollar of fraud loss incurs an average of $4.41 in additional costs related to investigations, legal fees, and external recovery expenses. For Latin American financial institutions, where operational budgets are often tighter than in more mature markets, these costs can have a significant impact on profitability.

This is particularly relevant in the region’s competitive fintech environment, where more than 60% of new digital services focus on underbanked or unbanked populations, many of whom are using financial products for the first time. Preventing fraud is therefore not just a financial imperative but also a critical driver of user trust and adoption. 

Here are some key steps banks and fintechs can take to prevent payment fraud in Latin America:

1. Establish Fraud Detection Benchmarks

Fraud risks in Latin America are highly dynamic, influenced by transaction volume, payment channels, and the region’s diverse financial products. Establishing meaningful benchmarks requires careful consideration of a company’s unique operating context and risk profile.

For example, in e-commerce—a sector that has grown by over 25% annually in markets like Brazil and ColombiaCNP fraud has become a major concern. Providers should monitor metrics such as fraud loss per client, merchant fraud rates or dispute rates per transaction channel to determine where fraud is occurring and how much of it can be mitigated.

Having a clear view of fraud trends across different markets—such as higher phishing activity in Mexico or the rise of social engineering scams in Brazil—can help organizations tailor their fraud prevention efforts to each country’s unique challenges.

2. Leverage ‘Smart’ Fraud Detection Technologies

Latin America has seen rapid adoption of digital financial services, but this growth has been matched by a rise in fraud attempts. Advances in artificial intelligence (AI) and machine learning (ML) offer institutions a powerful way to fight back with cutting-edge fraud detection systems..

Dynamic fraud detection systems powered by AI can ingest millions of transaction data points to analyze patterns, detect anomalies, and adapt defenses in real time. For example, AI tools can identify unusual login locations or detect suspicious changes in spending behavior—both of which are common in fraud schemes targeting Latin American users.

In addition, these automated fraud prevention tools  can reduce the reliance on manual reviews, which is crucial for fintechs and smaller banks in the region that may face resource constraints. By using AI-driven tools, organizations can not only fight fraud more effectively but also scale their operations efficiently.

3. Find the Right Fraud Detection Partner

Choosing the right partner for fraud detection is critical for success in Latin America, where fraud types and regulatory environments vary widely across countries. A trusted partner can provide tailored fraud risk management solutions that address the region’s specific needs.

When evaluating a potential fraud mitigation partner, here are key capabilities to look for:

  • Localized Expertise: Solutions designed to handle unique fraud challenges in key markets such as Brazil, Mexico, and Argentina.

  • Multi-Layered Protection: Fraud prevention across payment types (e.g., CNP, P2P) and channels, including mobile wallets and digital banking platforms.

  • Real-Time Decisioning: AI-powered risk assessments that provide actionable insights during transactions, particularly for high-growth sectors like e-commerce.

  • Holistic Solutions: Comprehensive strategies that address both operational and transactional risks, including end-to-end visibility across data silos.

  • Proactive Support: A combination of automated and human-based customer support tailored to regional preferences.

Building Trust and Protecting Growth in Latin America

As Latin America continues its digital transformation, financial institutions and fintechs must prioritize robust fraud detection strategies to protect their customers and maintain trust. By combining localized benchmarks, cutting-edge AI technologies, and strong partnerships, organizations can stay ahead of fraudsters while enabling the seamless experiences customers expect.

Want to learn more about fraud detection tools tailored for the Latin American market?

Contact us to find out how Galileo’s advanced solutions can help you optimize your fraud mitigation strategy.

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