Fraud, Cyber & Security Smarts: The New Frontier of AI-Powered Fraud

Artificial intelligence (AI) is reshaping the fraud landscape for small and medium-sized businesses (SMBs), enabling scams that are more personalized, more convincing, and harder to detect than ever before. As these threats evolve, so do regulatory expectations and security best practices—raising the expectations for organizations to protect their people, data and operations.

Steve Lenderman, Head of Fraud Prevention at isolved, shares his perspective on the trends gaining momentum in AI-enabled fraud, the safeguards proving most effective and the practical steps SMBs can take to stay ahead of increasingly sophisticated threats.

Rise of AI-Driven Scams and Deepfake Impersonations

Q. What’s the most surprising or concerning trend in AI-driven fraud that SMBs should be watching for in 2026?

I’m not surprised, but I am concerned that phishing will continue to rise as AI is used to generate increasingly effective emails. These attacks can adapt and learn from past successes, making them more convincing over time. Even more alarming, AI enables phishing to be carried out at a far greater scale than we currently face.

Q. What safeguards or verification processes can help stop AI-generated scams before they succeed?

Ironically, one of the most effective ways to prevent AI‑enabled digital fraud is by using analog controls. Require at least two layers of authentication before moving funds and establish shared passwords or verification codes with clients to confirm transactions.

Two‑factor authentication (2FA) remains valuable, but it is only truly secure when implemented with passkeys or Fast Identity Online (FIDO) security keys. Traditional methods, such as email, short message service (SMS) or even authenticator apps, are increasingly vulnerable to phishing attacks.

Social Engineering

Q. Phishing isn’t new, but personalization has reached new levels. How are fraudsters tailoring attacks to specific individuals or businesses?

Phishing has evolved beyond traditional and spear‑phishing attacks. Today, these schemes are weaponized by AI, which can rapidly gather detailed information about you and your organization to exploit in convincing ways. Details once considered safe because only trusted people would know them are no longer sufficient protection. AI now does the homework for attackers, faster, smarter and on a far greater scale than ever before.

Regulatory Shifts and Enforcement Priorities

Q. What new or evolving regulations around cybersecurity and fraud prevention should SMBs expect in 2026?

The current administration is moving in the opposite direction of regulation, allowing greater leeway for AI and growth. However, we should look at Europe and other countries that have already begun the journey of AI regulation as a guide to prepare for what’s ahead. The best‑in‑class organizations, like isolved, take proactive steps in fraud prevention and cybersecurity, doing the right thing even in the absence of formal regulation.

Outsmarting the Scammers: Tools & Tactics

Multi-Factor Authentication (MFA) and Access Controls

Q. How can SMBs implement MFA effectively without frustrating users?

The transition to 2FA continues as more users become familiar with it. Unfortunately, email and SMS are no longer as secure or viable as modern passkeys. Organizations must balance security with usability, which requires changing communication practices and culture through small but consistent steps. Passkeys work best as a proactive safeguard, not a post-incident fix.

Q. What are common mistakes organizations make with access controls that still leave them exposed?

Small businesses often try to implement new security controls all at once without proper training or understanding the impacts. This leads to frustration and a return to less secure practices, blaming the controls instead of the poor deployment. Success depends on gradual rollout, clear communication and culture change, otherwise even strong safeguards will fail.

Behavioral Analytics and Anomaly Detection

Q. How do behavioral analytics and anomaly detection help identify fraud that traditional tools might miss?

Behavioral analytics and anomaly detection strengthen fraud prevention by learning normal user patterns and flagging deviations. Unlike static rules, they use machine learning to spot unusual activity in real time, making them effective at catching new or unexpected fraud tactics.

Secure Payrolls Change Protocols

Q. What new controls or verification steps are proving most effective?

It’s critical to move away from passwords and outdated forms of 2FA, like email and SMS. These methods are antiquated and simply not effective against the rapidly evolving threats posed by AI. Passkeys are not the future; they are the present, and organizations need to adopt them now to stay secure.

Employee Education

Q. With cyber threats growing more sophisticated, what does modern employee training need to look like?

Research shows that current methods of phishing tests and awareness messaging often contribute to cybersecurity fatigue. For example, employees may receive one email warning them not to click on links, only to be sent a legitimate internal email from another department asking them to do exactly that. This inconsistency creates confusion and frustration, undermining the effectiveness of training.

To truly strengthen defenses, organizations need to fight fire with fire, leveraging AI to design realistic simulated attacks and to analyze phishing test results more intelligently. Training should also be made more engaging by incorporating game‑like elements, such as scores, ratings and leaderboards, turning security awareness into a challenge that motivates employees rather than drains them.

Q. Are there any low-cost or high-impact awareness tactics SMBs can start implementing immediately?

Security is ultimately a cultural issue, driven by clear messaging from leadership. Simple, consistent reminders, such as adding, “Think before you click” to email signatures or communication channels help reinforce good habits every day.

Just as important, peer recognition should be built into the culture: celebrate employees who spot and report suspicious activity, turning vigilance into a shared norm across the organization.

As AI-enabled scams grow more advanced and social engineering becomes harder to detect, SMBs must rethink how they safeguard their systems, employees and financial processes. Strengthening authentication, improving cultural awareness and adopting modern security practices are core to operational resilience.

If your organization is looking to get ahead of 2026’s most pressing fraud and cybersecurity risks, check out our recent webinar Inside the Next Wave of Cybercrime: 2026’s Biggest Scams and How to Outsmart Them.

_{Disclaimer. The information provided herein is for general informational purposes only and is not intended to be legal, investment or tax advice. It is not a substitute for professional legal, investment or tax advice, and you should not rely on it as such. No attorney-client or accountant-client relationship or any other kind of relationship is formed by any use of this information. The effective date of various provisions, amendments, and regulatory guidance may impact eligibility. The accuracy, completeness, correctness or adequacy of the information is not guaranteed, and isolved assumes no responsibility or liability for any errors or omissions in the content. You should consult with an attorney, investment professional or tax professional for advice regarding your specific situation.}