Fraud Detection System Using Profile Comparison and AI
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Solution Overview
Problem
Financial institutions face challenges in preventing fraud during digital transactions, particularly when customers are deceived into transferring funds to unauthorized accounts, leading to financial losses that are often refunded by the institution.
Innovation Solution
A method and system that utilize a processor to compare profile information of a requestor with transaction-specific information, applying an AI algorithm to determine whether a transaction is fraudulent, and if so, suspend it and send a warning message to the requestor, using metrics like precision, recall, and AUC to assess the algorithm's accuracy.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Speed
If digital payment applications enable quick and easy transactions with no delay, then transaction speed and convenience are improved, but customers become vulnerable to fraudsters who can deceive them into transferring money to unauthorized accounts
Solution Approach 1:
The system performs preliminary actions by comparing profile information before the transaction is completed. The processor compares the recipient's profile information with the requestor's profile information and determines whether to suspend the transaction before funds are transferred, preventing fraud before it occurs while maintaining quick transaction processing for legitimate cases.
Solution Approach 2:
The system introduces an intermediary verification mechanism between the requestor and recipient. The processor acts as an intermediary by retrieving and comparing profile information, and the system suspends transactions when mismatches are detected, providing a mediating layer that prevents fraudulent transfers while allowing legitimate transactions to proceed.
2Measurement precision
If the system compares profile information to detect fraudulent transactions, then fraud detection accuracy is improved, but transaction processing time increases
Solution Approach 1:
The system applies partial action by performing profile information comparison only when necessary - specifically when a transaction is initiated. The processor retrieves profile information and performs comparison selectively rather than continuously, and only suspends transactions when mismatches are detected, thus maintaining accuracy while minimizing time loss for legitimate transactions.
3Reliability
If the system suspends transactions with mismatched profile information, then fraud prevention effectiveness is improved, but legitimate transactions may be incorrectly blocked
Solution Approach 1:
The system implements feedback by providing warnings to requestors when profile information mismatches are detected. The processor determines whether to suspend the transaction based on the comparison results, and the system can notify customers about potential fraud risks, allowing them to verify transaction details before completion. This feedback mechanism maintains high fraud prevention effectiveness while reducing false blocks of legitimate transactions through customer awareness.
Data Source
AI summary
A method and a system for detecting suspicious transactions and providing warnings in advance of executing the transactions in order to prevent fraud are provided. The method includes: receiving a request to conduct a transaction with an entity by using a digital payment application, the request including first profile information that relates to the entity; retrieving second profile information that relates to the requestor; comparing the first profile information with the second profile information; and determining, based on a result of the comparison, whether to suspend the requested transaction. When a determination is made that the proposed transaction may be fraudulent, the transaction may be suspended and a warning message may be sent to the requestor in order to afford an opportunity to avoid the fraud.