Machine Learning in Finance: How it Helps with Financial Fraud Detection

April 16, 2021

To start with, machine learning (ML) is now one of the most advanced technologies that are widely applied to different industries.

Basically, that’s because it has high effectiveness, provides valuable benefits, and enhances the processes automation to ensure better performance for any industry.

Machine Learning and Financial Fraud Credit Card

According to McKinsey, one of the industries that need ML implementation the most is the finance and banking industry.

As the sector operates tons of personal data, and billions of critical transactions every second, it becomes especially vulnerable to fraud activity. Scammers are always seeking its weak points to crack the servers or get the valuable data for the blackmailing.

However, because of its innovative characteristics, machine learning can greatly benefit financial industries by detecting and preventing such fraudulent activity, thus improving the entire system security.

In this article, we will discover how this process works and the main ways machine learning in finance can be used.

Let’s start right now!

What to Know About Machine Learning in Finance & Banking

Machine learning in finance is now considered to be one of the anchor points of different fields of finance and banking services as it performs critical tasks which include transaction processing and calculation, risk evaluation, and even behavior prediction.

Being a subset of data science, machine learning has also the ability to learn and improve from the experience without being programmed, which means the technology will be improving systematically.

Machine learning along with the entire artificial intelligence (AI) development, now radically changes and improves the traditional processes of financial services.

One of the critical aspects is detecting the fraud activities, providing the instant response to any suspicious actions, and getting plenty of valuable insights to learn from for fighting further cases of such activities. Here are some examples of how it works:

  • Learns from the payment data to perform the services automatically. For example, ML technology can process the payment details for providing the analytics services.
  • Detects the fraud activity and minimizes the risks of the intrusion into the payment system. For instance, machine learning can analyze the accidental false positives in fraud detection, thus preventing cost loss.
  • Respond to the unusual aspects of payments. For example, ask for double authentication to confirm and complete the sale transaction.

Thus, thanks to the process automation and deep learning features, fraud detection machine learning can greatly improve the quality of the financial industry services and minimize the risks of the third parties’ intervention to protect the most critical and vulnerable processes.

Fraud Detection Using Machine Learning: Main Tasks

The finance and banking industry consider machine learning to be extremely helpful in financial fraud detection. Unlike the other innovative technologies, it will never be outdated, instead, it becomes even more valuable after being able to analyze more complex cases.

Furthermore, the services which have been established on the hand-crafted rules, which are also known as “if-then” statements, with the ML technology will be performed automatically.

According to Deloitte this greatly reduces the risks of missing suspicious transactions, detects similar cases, and prevents new ones.

So, let’s now cover which tasks can perform machine learning for finance.

Machine Learning and Financial Fraud Hacker

Decreasing the Cases of Security Breach

Fraud is one of the most common issues the finance industry usually faces with. By operating with billions of dollars, tons of personal accounts, and large corporations, it becomes one of the primary targets for fraud.

And, when technologies become more and more developed and powerful, the number of fraud attacks also increases.

In addition to that, most financial units tend to store the big data online, which only introduces additional risks to the security breaches.

With the machine learning systems implementation, financial institutions can get various technologies to combat the frauds, create a set of rules that will be automatically improved with the times and provide the highest level of security to it.

Basically, it works by comparing every new transaction with the previous (personal information, data, IP address, location, etc) and detects the suspicious cases which should be checked additionally.

As a result, financial units can conduct credit card fraud detection using machine learning.

Analyzing the Credit Scoring

Nevertheless, machine learning and finance are not only about credit card transaction checking. It can also greatly benefit credit scoring automation, as it implies complex analysis of various data, such as personal information, payment history, current income, and even the credit history from other financial units before making the final decision about each case.

Machine learning can easily resolve this issue by involving various algorithms that are constantly improving to automate the process and enhance the quality of the credit scoring process, which means large investment savings and workflow enhancement for the financial units.

Besides, it can process not only the personal information of a debtor but also detailed processing of a person’s social media accounts to issue the quality report of the data analysis.

And, fraud detection using machine learning makes it nearly impossible for scammers to influence the credit scoring process and make a profit from it.

Suggesting the Best Investment Strategies

Financial fraud detection is also critical while choosing the best time and areas for investing. Before making any investment it is significantly important to evaluate all the risks and benefits you can get from this process.

Furthermore, the fraudulent cases in the investment at present practically always lead to the irreparable loss of finances, and that is where machine learning in fraud detection can really make sense.

The financial advisory systems provide you with the critical data where the possible risks and benefits are analyzed using the machine learning algorithms.

So, people usually consider that specific technology while leveraging the large investments, like different retirement or student loans, trading, investing, etc.

Machine learning for fraud detection helps people make sound decisions for their high-value financial transactions.

Why Do You NeedMachine Learning in Finance?

As you can see, ML technology can also bring great benefits to the financial industry. Along with the most important benefit of financial fraud detection, it can also provide the banking and finance units with the following gains:

Machine Learning and Financial Fraud Money

Assists in Processing Big Data

Because of the necessity to work with huge amounts of personal and corporate accounts, machine learning can save lots of time, costs, and effort by automating the process of data analysis.

Besides, the financial institutions will be also able to ensure the data is secure, and can’t be obtained by third parties.

Reduces the Possibility of Human Error

In the middle of the last century, human error was the #1 issue of why financial institutions experience losses. Machine learning can replace human work by automating the traditional process in this industry, which means a lower error rate.

Is Transparent and Bias-Free

The decisions made by the machine learning systems in some cases might produce better and more transparent results than human judgments, but make sure the application has gained enough knowledge for more quality biases.

Makes Valuable Predictions

By using the specific algorithms and previous experience analysis, machine learning can provide a list of suggestions that might prevent and alert the financial units about the possible outcomes in different areas, like fraud detection, investment predictions, and so on.

Thus, the finance and banking industry will be able to apply preventive measures or change the current state of affairs, thus, getting more benefit from it.

Saves Operational Costs

With automating processes using machine learning, you can effectively perform different tasks, improve their accuracy and save huge investments of this process that are traditionally analyzed manually.

Thus, along with applying machine learning for fraud detection, financial institutions will also get the profit from its use in automating the data processing, making transparent and bias-free decisions, predicting various issues, and eliminating human error.

Being aware of these benefits, it is now one of the most popular and important technologies for the finance and banking industry.

Machine Learning and Financial Fraud Technology


As you can see, financial fraud and machine learning are practically inseparable at present times. By applying various rules and synthetic algorithms, it becomes just a perfect technology for automated financial fraudulent detection.

Unlike the traditional system of analysis, which is mostly performed by human decisions, it allows covering much more information and processes the big data in shorter periods of time, thus saving lots of investments, resources, and time for the financial units.

Fraud detection using machine learning allows creating new rules and more complex algorithms for analyzing various transactions and suspicious financial behavior thus minimizing the risks of financial loss.

That is why financial software development is now the major priority for the finance industry.

Our best expert teams at Intellectsoft, empower different companies and their workforces with various innovative solutions and approaches to develop the exact products they need for improving their performance.

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Feel free to talk to our experts to learn more about machine learning technology and how your business can start getting profit from it today!