AI reshapes SA’s financial sector, boosting fraud detection but raising new consumer risks

Artificial intelligence is rapidly transforming South Africa’s financial sector, delivering tangible benefits for consumers and businesses while introducing new risks that will require stronger oversight and governance, according to a recent study by the Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA).

The report shows that AI adoption across banks, insurers and investment managers is accelerating, with fraud prevention emerging as one of the most significant areas of impact.

Nolwazi Hlophe, senior fintech specialist at the FSCA, said fraud remains one of the biggest threats facing the financial system, but AI is proving to be a powerful tool in combating it.

“Banks and insurers are using machine learning to spot unusual patterns in real time—flagging suspicious transactions before they become costly scams. For consumers, this means fewer fraudulent charges and faster resolution when issues arise,” she said.

Hlophe added that for businesses, AI-driven fraud detection reduces losses and strengthens trust with customers.

“Gone are the days of one-size-fits-all banking. AI analyses your spending habits, life events, and even alternative data (like mobile usage) to offer tailored products—whether it’s a savings plan, a loan, or investment advice. Chatbots and virtual assistants provide 24/7 support, helping you reset passwords, check balances, or even apply for a mortgage without waiting in line.”

Hlophe said that AI is revolutionising insurance through dynamic pricing and underwriting. Premiums can now adjust in real time based on behaviour or IoT data—think telematics for car insurance or health trackers for medical cover.

“Claims processing is faster and smarter, thanks to AI tools that verify and prioritise claims using natural language processing and image recognition,” she said.

“Consumers should look for clear disclosures when AI is used in decisions that affect them—such as loan approvals or insurance pricing. Businesses must invest in robust governance, ethical standards, and compliance with laws like POPIA to protect customer trust.”

Hlophe added that the FSCA and the PA will be publishing a discussion paper that will engage the financial industry on how to deal with risks emanating from the adoption of AI.

“This will shape how AI is governed, ensuring innovation while protecting consumers and maintaining financial stability.”

Hlophe said that AI in South African finance is here to stay—and it’s changing the game for both consumers and businesses.

“Expect smarter fraud prevention, personalised services, and faster processes. But stay alert: understand your rights, ask questions about how your data is used, and choose institutions that prioritise transparency and fairness.”

The FSCA said that informed by a survey of banks, insurers and investment managers that was conducted in 2024, as well as global developments, the report reveals a steady increase in AI usage.

“Banks are at the forefront, with 52% of banking institutions actively employing AI, followed by payment providers at 50%. Investment intentions vary across the sector: while most institutions plan modest investments under R1 million, more than half of bank respondents anticipated investing over R20m in AI technologies during 2024.”

The FSCA added that the report highlights key opportunities to improve data analytics, operational efficiency and cybersecurity measures.

“However, it also identifies significant risks, including consumer risks such as data privacy concerns, bias and discrimination, reputational risks and systemic vulnerabilities. Constraints to broader adoption include regulatory uncertainty, shortages of skilled professionals and difficulties with explainability and governance.” 

The FSCA said that emphasising the need for ethical and responsible AI deployment, the report considers the need for robust governance frameworks, improved transparency and stronger consumer protection measures.

“Lessons learned include prioritising high-impact use cases, developing clearer disclosure requirements and promoting digital and AI literacy across the sector.”

BUSINESS REPORT