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Machine Learning as a Tool for Assessment and Management of Fraud Risk in Banking Transactions

Author

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  • Antonio Dichev

    (Department of Finance and Credit, Tsenov Academy of Economics, 5250 Svishtov, Bulgaria)

  • Silvia Zarkova

    (Department of Finance and Credit, Tsenov Academy of Economics, 5250 Svishtov, Bulgaria)

  • Petko Angelov

    (Department of Finance and Credit, Tsenov Academy of Economics, 5250 Svishtov, Bulgaria)

Abstract

The present work aims to fill the gaps in existing research on the application of machine learning in fraud detection and management in the banking sector. It provides a theoretical perspective on the evolution of algorithms, highlights practical aspects, and derives relevant metrics for evaluating their performance on unbalanced data. In the growing context of artificial intelligence, the adoption of an innovative, systematic approach to studying fraud in banking transactions through advanced machine learning algorithms is completely positive for the overall accuracy and effectiveness of risk management and has really practical and applied significance. The proven methodology (Classification and Regression Trees, Gradient Boosting, and Extreme Gradient Boosting) was tested on nearly 1.5 million in the banking sector, confirming the observations related to the application of fundamental assessments and specialized statistical methods through machine learning algorithms, demonstrating superior discriminatory power compared to classical models. The development provides valuable insights for managers, researchers, and policymakers aiming to strengthen the security and resilience of banking systems in times of evolving financial fraud challenges.

Suggested Citation

  • Antonio Dichev & Silvia Zarkova & Petko Angelov, 2025. "Machine Learning as a Tool for Assessment and Management of Fraud Risk in Banking Transactions," JRFM, MDPI, vol. 18(3), pages 1-17, March.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:3:p:130-:d:1603681
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    References listed on IDEAS

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    1. Zhelyo Zhelev & Silviya Kostova, 2024. "Investigating the Application of Digital Tools for Information Management in Financial Control: Evidence from Bulgaria," JRFM, MDPI, vol. 17(4), pages 1-17, April.
    2. Carmona, Pedro & Climent, Francisco & Momparler, Alexandre, 2019. "Predicting failure in the U.S. banking sector: An extreme gradient boosting approach," International Review of Economics & Finance, Elsevier, vol. 61(C), pages 304-323.
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