Fraud Detection Solution for Financial Transactions with Machine Learning

Abstract

Fraud has become a trillion-dollar industry today. Some finance companies have separate domain expert teams and data scientists are working on identifying fraudulent activities. Data Scientists often use complex statistical models to identify frauds. However, there are many disadvantages to this approach. Fraud detection is not real-time and therefore, in many cases fraudulent activities are identified only after the actual fraud has happened. These methods are prone to human errors. In addition, it requires expensive, highly skilled domain expert teams and data scientists. Nevertheless, the accuracy of manual fraud detection mythologies is low and it is very difficult to handle large volumes of data. More often, it requires time-consuming investigations into the other transactions related to the fraudulent activity in order to identify fraudulent activity patterns. Finance companies are not getting adequate return of interest (ROI) despite the resources and money spent on these traditional methods. Most of the traditional fraud detection models focused on discrete data points. (User accounts, IP addresses devices, etc…) However, these methods are no longer sufficient for today’s needs. As fraudsters and hackers are using more advance and cutting edge techniques to mask their fraudulent activities even from the sharpest eyes. These methods can only detect known types of attacks therefore an analytical approach is required to address these drawbacks of the traditional methods. In order to address the above-mentioned issues in fraud detection domain, a new fraud detection system was introduced which uses an Artificial Neural Network to identify fraudulent transactions.