PHASE 1
Project Proposal: fraud Detection System
1. Problem Statement
Financial fraud is a significant challenge in the digital economy, affecting individuals, businesses, and
financial institutions. Cybercriminals exploit vulnerabilities in payment systems, banking platforms, and
digital transactions, leading to financial losses and a loss of trust in financial institutions. Manual fraud
detection is inefficient and prone to errors, making it necessary to develop an automated fraud
detection system that can identify suspicious transactions in real time.
2. Proposed Software Solution
Our proposed solution is an AI-powered Fraud Detection System that uses machine learning (ML) and
big data analytics to detect fraudulent activities. The system will analyze transactional data, user
behavior, and historical fraud patterns to identify anomalies and flag suspicious transactions. The system
will integrate with banking systems, payment gateways, and financial service providers to enhance fraud
prevention.
Key Features:
Real-time Transaction Monitoring. Detect fraudulent transactions instantly.
Machine Learning Algorithms. Use historical data to recognize fraud patterns.
Risk Scoring System. Assign risk scores to transactions based on anomaly detection.
Automated Alerts. Notify users and financial institutions of suspicious activity.
User Verification & Authentication. Implement multi-factor authentication (MFA) for high-risk
transactions.
Dashboard & Reporting. This will provide real-time insights and fraud trends for financial
institutions.
3. Scope of the System
The fraud detection system will be designed for banks, financial institutions, and online payment
platforms.
In-Scope Features:
Data Collection & Processing. It will integrate with financial APIs to collect transactional data.
Anomaly Detection Algorithms. It will identify patterns that indicate potential fraud.
Automated Fraud Flagging. It will immediately block or require additional verification for
suspicious transactions when detected.
Role-Based Access Control. Not everyone stakeholder shall have access to all information but
rather be will be allowed different levels of system access e.g. fraud analysts, administrators,
customers.
Out-of-Scope Features:
Legal & Compliance Enforcement. The system will detect fraud but will not take legal action.
Physical Security. The system focuses on digital fraud, not physical financial crimes.
Third-Party Investigation. Fraud case investigations will be handled by financial institutions.
4. Objectives of the System
o The main objective is to develop a robust fraud detection system that enhances financial
security by identifying and preventing fraudulent transactions.
On the other hand, other objectives include the following;
o To reduce false positives and negatives using ML models.
o To provide real-time fraud alerts and preventive measures.
o To build a secure system that reassures customers.
o To optimize Operational Efficiency
o To design a system that can adapt to evolving fraud techniques.
5. Stakeholders
i. Financial Institutions. These include Banks, financial tech companies, and payment processors
using the system.
ii. Customers. Individuals and businesses performing online transactions.
iii. Fraud Analysts. These are the professionals who will monitor flagged transactions.
iv. Regulatory Authorities. Government and financial regulators overseeing fraud compliance.
v. Software Development Team. These are software engineers responsible for designing and
maintaining the system.
6. Software Development Lifecycle (SDLC) Model
Chosen Model: Agile Development
Reason:
Iterative Development: Agile allows for continuous updates as fraud detection patterns evolve.
Flexibility: Fraud techniques change rapidly, requiring an adaptable development approach.
Frequent Testing & Feedback: Continuous testing ensures the system remains effective.
Stakeholder Involvement: Financial institutions can provide ongoing feedback to improve fraud
detection algorithms.
7. Deliverable: Project Proposal Document
This document outlines the problem, proposed solution, scope, objectives, stakeholders, and SDLC
choice. The next phase will involve detailed system design, including architecture and implementation
strategy.
