Fraud Prevention in Banking: Machine Learning-driven Approaches for Detecting Payment Anomalies

The fast-paced development of digital banking has brought with it new convenience but also tremendous challenges in maintaining transaction security. Banks are confronted with mounting threats from malicious activities like identity theft, account takeover, and unauthorized access, which can lead to huge financial losses and loss of customer confidence. This study investigates the formulation of a cybersecurity framework for fraud prevention in banking through machine learning algorithms. A transactional real-world dataset of 200,000 instances from LOL Bank Pvt. Ltd. was used to construct and evaluate predictive models. Preprocessing included categorical encoding, temporal feature engineering, and synthetic minority oversampling (SMOTE) for class imbalance handling. Three machine learning classifiers—Logistic Regression, Random Forest, and XGBoost—have been compared using measures of accuracy, precision, recall, F1-score, and ROC-AUC. Results show that ensemble models significantly outperformed logistic regression by a wide margin, with Random Forest and XGBoost both achieving over 91% accuracy and very good discrimination power. The study emphasizes how well machine learning-based systems detect theft in real time and outlines avenues for future research to enhance detection using adaptive and interpretable AI models.