How to Prevent Financial Fraud with ML: Top 8 Methods

The main areas for financial fraud detection

Bank transactions and electronic payments

  • Ghost invoices: fake invoices from companies that don’t exist or business representatives whose identity a fraudster assumes. Machine learning algorithms for fraud detection can distinguish legitimate invoices from forged ones.
  • Stolen cards: even if a client is physically present at the bank, it’s necessary to verify the person is the rightful holder of the card. That’s why using machine learning to detect credit card fraud is crucial even in offline settings.
  • Phishing: an attempt to steal a person’s passwords and other personal details by posing as a legitimate organization. An example of phishing is when a user is prompted to input their card details on a site that looks genuine but is, in fact, fake and malicious.
  • Fake online marketplaces: these attract customers through fake reviews and deliver counterfeit products or fail to deliver the ordered items at all. By performing a sentiment analysis, an ML system can uncover such merchants and protect customers.
  • Identity theft: stealing a client’s personal data to gain access to their accounts and funds. Later in the article we will cover why exactly knowing how to prevent financial fraud in identity theft scenarios is crucial.

Credit history

Mobile fraud

Identity theft

  • Account takeover occurs when the stolen data is used to gain access to a person’s current accounts.
  • Synthetic theft means creating new personalities by combining the stolen data and forged details.

Insurance claims

Money laundering

Why use machine learning in fintech?

Practical ML algorithms to combat fraud

Supervised algorithms

  • Logistic regression
  • Decision trees
  • Random forest
  • Neural networks

Unsupervised algorithms

  • K-means clustering
  • One-class SVM
  • Local Outlier Factor (LOF)
  • Isolation forest

How to get started?

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Eastern Peak is a custom software development company which possesses deep expertise in working with startups and building intuitive mobile apps from ground up.

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Eastern Peak

Eastern Peak

Eastern Peak is a custom software development company which possesses deep expertise in working with startups and building intuitive mobile apps from ground up.

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