Online fraud is a growing threat in Sri Lanka, with fraudsters exploiting economic instability through fake loan schemes, investment scams, and social engineering attacks. The Central Bank of Sri Lanka (CBSL) has reported multiple incidents of scammers impersonating legitimate financial institutions to steal customer credentials. As digital banking expands rapidly across the country, the attack surface for fraudsters widens — and this is where artificial intelligence (AI) is beginning to play a transformative role.

AI's core advantage is adaptability. Unlike rigid rule-based systems, AI models learn continuously from vast datasets, distinguishing normal from suspicious behaviour with far greater accuracy. This is particularly valuable in Sri Lanka's fast-growing digital payments landscape, especially given the grown number of digital thefts.

Real-time transaction monitoring is among AI's most impactful applications. CBSL's Circular No. 2 of 2025 now requires banks to report cyber incidents within two hours of detection, pushing institutions toward real-time intelligence rather than after-the-fact investigation. Locally, this is urgent — Sri Lankan banks have received widespread complaints from customers who were tricked into sharing One-Time Passwords (OTPs), resulting in significant funds being transferred from their accounts. Smarter, behaviour-based authentication systems could close this vulnerability.

AI-powered natural language processing also offers strong defences against phishing. Many Banks are being impersonated by scammers using fake email addresses, forged logos, and the names of senior officials. AI models that detect such impersonation patterns in real time add a critical layer of protection for ordinary consumers.

At the national level, momentum is building. The 2024 Budget allocated LKR 1.5 billion toward AI innovation, and Sri Lanka is developing a five-year National AI Strategy. At the 2025 Sri Lanka Fintech Summit, senior officials warned of a rising "scam economy" and highlighted fintech's potential to unlock $15 billion in value for the country. Meanwhile, platforms like LankaPay and bodies such as FinCSIRT and SLCERT are already fostering cross-institutional collaboration to share threat intelligence — a foundation that AI can significantly amplify.

However, a national awareness campaign found that consumer ignorance, more than technical failure, remains the leading cause of financial fraud in Sri Lanka. AI must therefore be paired with public education, stronger system infrastructure, and clear regulatory oversight to deliver its full potential.

The institutions and regulators that invest wisely in AI, while maintaining trust with the public will be best positioned to safeguard Sri Lanka's digital economy ambitions. – iOM Marketing and Research