|| Jai Sri Gurudev ||
ADICHUNCHANAGIRI UNIVERSITY
Project Synopsis
On
“Machine Learning for Secure Digital
Payment Systems”
Submitted in partial fulfilment for the academic year 2025-26
Bachelor of Engineering
In
Information Science and Engineering
Submitted by,
SUHAS GOWDA K N [22ISE053]
DARSHAN GOWDA K N [23ISE401]
Coordinator
Prof. Vidhya S G
Assistant Professor
Dept. of IS&E
BGSIT, BG
Nagara
FACULTY OF ENGINEERING, MANAGEMENT AND TECHNOLOGY
BGS INSTITUTE OF TECHNOLOGY
DEPARTMENT OF INFORMATION SCIENCE AND ENGINEERING
B G NAGARA-571448
2025-2026
Contents
Abstract
The rapid growth of online financial transactions has increased the risk of fraudulent
activities, leading to huge financial losses worldwide. Traditional rule-based fraud detection
systems are not sufficient to deal with the constantly evolving strategies of fraudsters. This
project proposes a machine learning-based fraud detection model that analyzes transaction
data, learns fraud patterns, and distinguishes between legitimate and fraudulent activities with
high accuracy. The model leverages algorithms such as Logistic Regression, Random Forest,
SVM, Gradient Boosting, and Neural Networks. Evaluation metrics such as precision, recall,
F1-score, and AUC-ROC curve will be used to assess performance. The system aims to
minimize false positives, ensure real-time detection, and provide a scalable solution for
financial institutions and e-commerce platforms.
Introduction
With the increased usage of online banking, e-commerce, and digital wallets, the
volume of digital transactions has grown tremendously. Along with this growth, fraudulent
activities such as identity theft, card skimming, phishing, and account takeovers have also
increased. Fraud detection is a challenging task due to the large-scale, imbalanced, and
dynamic nature of transaction data. Traditional fraud detection systems rely on static rules and
thresholds, which are not effective against adaptive fraud patterns. Machine learning (ML)
techniques, however, can automatically learn from historical data, detect hidden patterns, and
adapt to new fraud strategies, making them a powerful solution for online payment fraud
detection.
Existing system
Current fraud detection systems mainly use rule-based methods and manual review
processes. These systems monitor transactions based on predefined rules such as transaction
limits, location mismatches, and spending frequency. If a transaction exceeds a set threshold, it
is flagged as suspicious.
Examples of existing approaches:
Simple statistical analysis (e.g., sudden large purchases).
Blacklist/whitelist-based systems.
Manual fraud investigation teams.
Disadvantage
1. High false positive rate, leading to inconvenience for legitimate customers.
2. Limited scalability for handling massive transaction data.
3.Time-consuming manual review process.
4. Inability to detect sophisticated fraud attempts involving multiple accounts and devices.
Proposed system
The proposed system uses machine learning algorithms to build an intelligent fraud
detection model. It will analyze historical transaction data to identify fraudulent patterns and
classify new transactions as “legitimate” or “fraudulent.” The system will handle imbalanced
datasets using techniques like SMOTE, ensure feature selection through correlation analysis,
and test various algorithms including Logistic Regression, Random Forest, SVM, Gradient
Boosting, and Neural Networks.
The model will be trained and evaluated using real-world datasets (e.g., Kaggle credit card fraud
dataset). Performance will be measured through metrics like precision, recall, F1-score, and
ROC-AUC. The final system can be deployed as an API or web-based tool for real-time fraud
detection in financial applications.
Advantage
Higher accuracy compared to rule-based methods.
Reduced false positives, minimizing inconvenience for genuine users.
Real-time detection and prevention of fraudulent transactions.
Scalable and suitable for high-volume financial applications.
Provides insights into fraud patterns through visualization.
Applications
E-commerce Platforms – securing customer transactions and preventing fraudulent
purchases.
Digital Wallets (PayPal, Google Pay, PhonePe, etc.) – monitoring abnormal spending
patterns.
Payment Gateways – real-time fraud screening before transaction approval.
Financial Institutions – strengthening security and protecting customer trust.
References
Kaggle, “Credit Card Fraud Detection Dataset”, Available at:
https://www.kaggle.com/mlg-ulb/creditcardfraud
Phua, Clifton, et al., "A comprehensive survey of data mining-based fraud detection
research", arXiv:1009.6119, 2010.
Bolton, Richard J., and David J. Hand, "Statistical fraud detection: A review",
Statistical Science, 2002.
Jha, Sanjeev, et al., "A comparative study of credit card fraud detection techniques",
Decision Support Systems, 2012.
