Application of Machine Learning Models in Fraud Detection in Financial Transactions

Dávila-Morán R.C.; Castillo-Sáenz R.A.; Vargas-Murillo A.R.; Dávila L.V.; García-Huamantumba E.; García-Huamantumba C.F.; Cajas R.F.P.; Paredes C.E.G. · Data and Metadata (2023) · DOI: 10.56294/dm2023109

Resumen

Introduction: fraud detection in financial transactions has become a critical concern in today’s financial landscape. Machine learning techniques have become a key tool for fraud detection given their ability to analyze large volumes of data and detect subtle patterns. Objective: evaluate the performance of machine learning techniques such as Random Forest and Convolutional Neural Networks to identify fraudulent transactions in real time. Methods: a real-world data set of financial transactions was obtained from various institutions. Data preprocessing techniques were applied that include multiple imputation and variable transformation. Models such as Random Forest, Convolutional Neural Networks, Naive Bayes and Logistic Regression were trained and optimized. Performance was evaluated using metrics such as F1 score. Results: random Forests and Convolutional Neural Networks achieved an F1 score greater than 95% on average, exceeding the target threshold. Random Forests produced the highest average F1 score of 0,956. It was estimated that the models detected 45 % of fraudulent transactions with low variability. Conclusions: the study demonstrated the effectiveness of machine learning models, especially Random Forests and Convolutional Neural Networks, for accurate real-time fraud detection. Its high performance supports the application of these techniques to strengthen financial security. Future research directions are also discussed.

Instituciones: Universidad Peruana de Ciencias Aplicadas; Universidad San Ignacio de Loyola; Universidad Continental; Universidad Autónoma del Perú; Universidad Nacional Hermilio Valdizán; Universidad Privada Norbert Wiener; Universidad Privada del Norte