AI-Based Fraud Detection
System for Online
Transactions with Real-Time
Alerts.
Introduction
• Online transactions are increasing rapidly.
• Fraud detection is critical for financial security.
• Traditional rule-based methods are ineffective.
• AI and Machine Learning (ML) offer real-time fraud detection.
• Our system enhances fraud detection accuracy and alerts users in real
time.
Problem Statement
• Financial fraud is a major concern for banks and e-commerce
platforms.
• Fraudulent transactions are difficult to detect with conventional
methods.
• Need for an AI-driven approach to classify transactions as safe or
fraudulent.
• A system that provides real-time predictions and alerts is essential.
Objectives
✔ Develop a machine learning model to detect fraudulent
transactions.
✔ Improve accuracy using data preprocessing techniques.
✔ Deploy the system as a Flask-based web application.
✔ Provide real-time fraud alerts via email notifications.
✔ Make the system accessible online for real-world testing.
System Architecture
System Architecture
Components of the system:
1.Data Collection – Financial transaction dataset.
2.Data Preprocessing – Feature scaling, handling imbalances using
SMOTE.
3.Model Training – Logistic Regression, Random Forest, Deep
Learning.
4.Prediction & Classification – Fraudulent or Safe transaction.
5.Web Application – Flask-based UI for user interaction.
6.Real-Time Email Alerts – Notification system for fraud detection.
Use Case Diagram
Class Diagram
Sequence Diagram
Activity Diagram
Technologies Used
• Programming Language: Python
• Machine Learning Libraries: Scikit-learn, Pandas, NumPy
• Model Deployment: Flask
• Frontend: HTML, CSS, JavaScript (Bootstrap)
• Database: CSV-based dataset (Credit Card Transactions)
• Email Alert System: SMTP (Gmail SMTP Server)
Data Preprocessing
• Handling Missing Values – Ensured clean data.
• Feature Scaling – Standardized numerical values for better model
performance.
• Class Imbalance Handling – Applied SMOTE to balance fraud vs.
non-fraud cases.
• Feature Engineering – Removed unnecessary features like time.
Model Training
Supervised Learning Algorithms Used:
• Logistic Regression
• Random Forest Classifier
Performance Metrics:
Accuracy
Precision
Recall
F1-score
Best Model Selection Based on Performance.
Web Application (Flask UI)
• User-friendly Interface – Allows transaction input.
• Real-time Prediction – Displays fraud probability.
• Automated Alerts – Sends emails when fraud is detected.
Real-Time Email Alert System
•SMTP Server – Uses Gmail for notifications.
•Sends Email to the concerned authority when fraud is detected.
•Enhances Security by providing instant alerts.
Model Deployment
• Flask Web Framework – Hosts the model for real-time predictions.
• Hosted on Render – Available for public access.
• Allows Real-time User Interaction.
Results & Accuracy
•Trained Model Performance:
•Accuracy: 99%
•Precision & Recall: High for fraud cases
•Effectiveness of Email Alerts in Detecting Fraud.
Challenges Faced
• Handling Imbalanced Dataset – Solved using SMOTE.
• Reducing False Positives – Tuned model hyperparameters.
• Integrating Real-time Alerts – SMTP configurations & security.
Future Scope
• Improve accuracy with Deep Learning (LSTMs, Autoencoders)
• Enhance fraud detection explainability (XAI techniques).
• Implement blockchain for transaction security.
• Expand to support multi-currency transactions.
Conclusion
• Developed an AI-based system for fraud detection in online
transactions.
• Achieved high accuracy using machine learning models.
• Implemented real-time alerts to enhance security.
• Successfully deployed a Flask-based web application.
