An Integrated Preprocessing and Drift Detection Approach With Adaptive Windowing for Fraud Detection in Payment Systems

Abstract

As fraudulent transaction methods evolve rapidly; it becomes progressively more challenging to detect them in payment systems. Static machine learning and rule-based traditional detection methods cannot capture all the dynamic and evolving nature of fraudulent behaviors, resulting in lower detection accuracy and a higher false positive rate. This study proposes a complete framework that brings together advanced data preprocessing, effective drift detection, and a reliable detection model to address these issues. The method uses Mutual Information and SelectKBest for selecting important features, applies ADASYN to handle class imbalance, and adopts Convolutional Neural Networks (CNN) to capture complex transaction patterns. By implementing Early Drift Detection Method (EDDM) and ADaptive WINdowing (ADWIN), the drift can be detected in advance and the system can respond to changes, both gradual and sudden.The framework was evaluated on three datasets, including real-world transactions and mixed-data environments, achieving superior accuracy, precision, and drift detection rates, with values up to 99.99% accuracy and 1.0 respectively. The findings show that the framework can adjust to changing patterns of fraud, reduce false positives, and enhance detection performance. These insights demonstrate the significance of dynamic pre-processing and drift-aware approaches in the context of real-time fraud detection. This also serves as a basis for future work in adaptive fraud detection model research areas such as of integrating online learning for improved speed and efficiency in high-frequency transactional environments.

Keywords

• Banking fraud
• payment systems
• prepaid cards
• debit cards
• credit cards
• fraud detection