How AI-driven fraud challenges the global economy – and ways to combat it

Cybercrime is draining resources from businesses and governments worldwide. Global cybercrime is expected to cost $10.5 trillion annually by 2025, up from $3 trillion in 2015. To put it in perspective, if annual cybercrime were a country, it would have the third-largest gross domestic product (GDP) worldwide.

Fraud, a common type of cybercrime, is poised for unprecedented acceleration thanks to the advent of generative AI (GenAI).

This acceleration could compound an already severe challenge. Fraud skyrocketed during the pandemic in the United States as more government services went digital. From 2018 to 2022, the federal government lost between $233 billion and $521 billion annually to fraud.

That translates to roughly 2% of America’s GDP stolen every year and a trillion dollars lost over that period. Shockingly, the fraud estimate doesn’t include federal funds lost at the state level.

Behind many of these losses are identity thieves, who use their victims' personal information to steal benefits such as SNAP assistance, small business loans, and other resources.

For victims, the impact is devastating. In 2022, 16% of identity theft victims reported contemplating suicide, up 10% from the previous year, highlighting the human toll of identity theft. Fraud perpetuated by identity theft is not just an economic crisis; it undermines trust and personal safety.

Now, with sophisticated AI tools at fraudsters' disposal, the problem is growing. AI-driven deepfake technology allows criminals to impersonate individuals' appearances with deceptive accuracy, potentially bypassing verification systems and gaining access to sensitive resources.

In 2023, deepfake-driven “face swaps” used to bypass identity verification surged by 704%. Meanwhile, AI-powered language models have made phishing scams more common and convincing, manipulating people into revealing sensitive information at an unprecedented scale.

In the video below, an identity thief in China attempts to use deepfake technology to impersonate a Pennsylvania resident and attack a US federal agency. ID.me detected and stopped this attack. Notice how the fraudster's face changes when the feed to his virtual camera is disrupted.

AI is changing the way we live, work, and govern. It has immense potential to improve our world but also creates threats we cannot afford to ignore. Traditional methods of verifying identity—passwords, usernames, and knowledge–based verification—are no longer sufficient.

AI enables fraudsters to exploit vulnerabilities at scale in these outdated systems.

So, what will it take to fight back?

For organizations concerned about rising fraud, "digital identity wallets" are essential to the solution. Digital identity wallets that leverage good biometrics to combat deepfakes and scams offer a secure and scalable way for organizations to verify that the individuals seeking access to their benefits and services online are who they say they are.

Here’s how they work:

While consumers have long been frustrated by the inconvenience of managing multiple passwords, the adversarial use of GenAI has made logging in less safe. Digital wallets solve both problems in one fell swoop by acting as a user-centric shared service.

With just a few clicks and consent, a digital wallet can help you easily log in and safely share credentials – just like your physical wallet makes it easy to produce your driver’s license in the physical world.

While most digital identity wallets follow this general structure, details vary between issuers. The European Union (EU), for example, has been leading the way in testing widespread use at a national level through large-scale pilots. By 2026, each member state will issue its own wallet built around a broad set of EU-wide technical standards.

Digital identity wallets address multiple vulnerabilities to fraud, including those associated with AI. They can incorporate advanced technologies such as 1:1 facial verification, duplicate face check and liveness detection, making them far more resistant to deepfake-driven impersonation attempts and scaled attacks.

Because the tech stack is built around the user—not an organization—identity wallets eliminate the need to submit personal information to different organizations manually. This reduces the risk of identity theft while removing friction.

Governments and organizations worldwide are adopting digital identity wallets to combat fraud. For example, seven states credited ID.me, the largest digital identity wallet in the United States, with helping to prevent over $270 billion in fraud during the pandemic.

Under the EU Digital Identity Wallet Framework, which took effect last year, each EU member state will also offer a digital identity wallet by 2026.

The momentum is growing globally. By 2029, 1.5 billion people are expected to use digital identity wallets, which will store approximately 30% of all digital identities worldwide.

Digital identity wallets transform identity verification, historically handled by point solutions such as data brokers, into a login problem. They provide a user-centric approach that is better designed for the future.

AI has reshaped the threat landscape for governments and businesses, but smarter, more secure identity verification can help us stay ahead. By investing in digital wallets, we can build a more secure, inclusive and future-proof digital economy.