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Module 1: Fraud Detection

Kenneth Chinweike Nwauzoma

Master of Business Administration, Nexford University

AIA 6600: Artificial Intelligence

Dr. Nicholas Bucciarelli

March 10, 2024

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Memo

To: The Management Team Date: 10/03/2024

From: Head, Fraud Detection and Risk Management

Re: Fraud Detection Solution using AI

Understanding the importance of the application of Artificial Intelligence in our business

operation is key to the successful achievement of the organizations goal and sustenance of the

business operational processes. Based on the challenges FCGT bank is facing in the area of

increased fraud cases, we have carefully carried out research and study the existing

operational processes and procedures and have discovered the lapses in the system which has

necessitate this memorandum to recommend necessary steps to curb fraud cases within the

bank.

In developing a sustainable solution, understanding the data involved in the operation is

very necessary. Therefore, the required data have been studied and understood, and it has

been positioned for AI integration. According to GlobalBanks (2022), some basic data stored

by banks includes Transaction details, Customer information (Names, Date of Birth, Address,

Contact), Loan details, Credit scores and Customer’s history with the bank. Other data stored

in the case of big commercial banks are financial statements, government policies and

stakeholder information.

For this project, we will have to introduce the Neural Network as one of the frameworks

for curbing fraud in banking. Neural Network A neural network is a model that can make

judgments in a manner that is analogous to that of the human brain. It accomplishes this by

employing methods that are analogous to the process by which biological neurons collaborate
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to recognize occurrences, evaluate possibilities, and arrive at conclusions (IBM, 2023). Our

focus will be on Multi-Layer Perceptron (MLPs). Because most situations in the real world

are nonlinear, it is essential to keep in mind that they are made up of sigmoid neurons rather

than perceptron. To train these models, data is typically supplied into them. These models

serve as the basis for computer vision, natural language processing, and other neural

networks. Another type of Neural network that can be applied is the Convolutional Neural

Networks (CNNs) which is very effective in the utilization and application to computer

vision, pattern recognition, and image recognition, these networks use linear algebraic

concepts, especially matrix multiplication, to detect image patterns (IBM, 2023).

Artificial Intelligence (AI) cannot be complete without learning. In other words, AI uses

learning. There are different types of learning used by AI, these include Deep Learning (DL)

and Machine Learning (ML). According to IBM (2023b), Deep learning can automatically

identify the collection of characteristics that differentiate distinct types of data from one

another, and it can handle unstructured data in its rawest form, such as text or photos. This

allows for the utilization of massive volumes of data while also reducing the need for human

interaction. This makes it the most suitable learning to be applied for this project. Deep

Learning, also known as supervised learning, involves labeled datasets, to train its algorithm;

however, a labeled dataset is not required. Non – deep Machine learning relies heavily on

human guidance for its learning process. To learn from data input variations, human

specialists typically need additional structured data, which they use to identify the collection

of features (IBM, 2023b). Another learning that is explored to be used in this project is

Transfer Learning (TL). The overarching concept behind transfer learning is to apply the

skills and knowledge gained by accomplishing tasks for which a large amount of labelled data
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is accessible to situations in which there is only a small amount of labelled data available

(https://plus.google.com/u/0/+Datacamp, 2011). One of the advantages is that A neural

network can be trained from beginning without the requirement for a large amount of data,

which may not be readily available or easily accessible.

After considering the deployment of the AI techniques in curbing the increase in fraud

cases in FCGT bank, it is very important to have the ethical considerations attached to the

deployment of these solutions. According to Hunter (2023) Some ethical considerations

include:

1. Transparency in communication.

2. Fairness and mitigation.

3. Accountability and responsibility

4. Data protection and privacy and many more.

In conclusion, the AI integration solution recommended, if deployed leveraging on the

effective learning systems will immensely reduce the increasing fraud cases as being faced by

FCGT bank now. It is also worth nothing that the ethical considerations have been thoughtfully

considered to ensure the accountability, fairness, transparency of the solution while

guaranteeing customer privacy and data is protected.

Yours Faithfully

Kenneth Nwauzoma

Head, Risk Management for FCGT Bank.

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References

GlobalBanks, O. A. (2022, November 25). How Are Databases Used in Banking? [Banking

Database 101]. GlobalBanks. https://globalbanks.com/how-are-databases-used-in-

banking/#:~:text=What%20Kind%20of%20Data%20is%20Found%20on%20a

https://plus.google.com/u/0/+Datacamp. (2011). Learn R, Python & Data Science Online.

Datacamp.com. https://www.datacamp.com/

Hunter, B. (2023, June 16). Ethical Considerations in the Development and Deployment of AI

Systems. Medium. https://banehunter.medium.com/ethical-considerations-in-the-

development-and-deployment-of-ai-systems-2316495d4a1e#:~:text=As%20AI

%20systems%20become%20increasingly%20integrated%20into%20our

IBM. (2023a). What Are Neural Networks? | IBM. Www.ibm.com; IBM.

https://www.ibm.com/topics/neural-networks

IBM. (2023b). What is Machine Learning? IBM. https://www.ibm.com/topics/machine-learning