Preprint Article Version 1 Preserved in Portico This version is not peer-reviewed

Emerging Approach for Detection of Financial Frauds Using Machine Learning

Version 1 : Received: 31 July 2021 / Approved: 2 August 2021 / Online: 2 August 2021 (12:15:52 CEST)

How to cite: Bandyopadhyay, S.; Thakkar, V.; Mukherjee, U.; Dutta, S. Emerging Approach for Detection of Financial Frauds Using Machine Learning. Preprints 2021, 2021080028 (doi: 10.20944/preprints202108.0028.v1). Bandyopadhyay, S.; Thakkar, V.; Mukherjee, U.; Dutta, S. Emerging Approach for Detection of Financial Frauds Using Machine Learning. Preprints 2021, 2021080028 (doi: 10.20944/preprints202108.0028.v1).

Abstract

The growth of regularly generated data from many financial activities has significant implications for every corner of financial modeling. This study has investigated the utilization of these continuous growing data by a means of an automated process. The automated process can be developed by using Machine learning based techniques that analyze the data and gain experience from the underlying data. Different important domains of financial fields such as Credit card fraud detection, bankruptcy detection, loan default prediction, investment prediction, marketing and many other financial models can be modeled by implementing machine learning models. Among several machine learning based techniques, the use of parametric and non-parametric based methods are approached by this research. Two parametric models namely Logistic Regression, Gaussian Naive Bayes models and two non-parametric methods such as Random Forest, Decision Tree are implemented in this paper. All the mentioned models are developed and implemented in the field of Credit card fraud detection, bankruptcy detection, loan default prediction. In each of the aforementioned cases, the comparative study among the classification techniques is drawn and the best model is identified. The performance of each classifier on each considered domain is evaluated by various performance metrics such as accuracy, recall, precision, F1-score and mean squared error. In the credit card fraud detection model the decision tree classifier performs the best with an accuracy of 99.1% and, in the loan default prediction and bankruptcy detection model, the random forest classifier gives the best accuracy of 97% and 96.84% respectively.

Keywords

Financial Analytics, Parametric and Non-parametric, Credit card fraud detection, bankruptcy detection, loan default prediction

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