AI in finance: Transforming risk management and fraud detection

Obbu, Sudheer (2025) AI in finance: Transforming risk management and fraud detection. World Journal of Advanced Engineering Technology and Sciences, 15 (1). pp. 747-756. ISSN 2582-8266

Artificial intelligence is transforming the financial services industry through revolutionary applications in risk management and fraud detection. This transformation extends beyond incremental improvements to fundamentally reimagine core financial processes, enabling institutions to process vast quantities of data, identify complex patterns, and make decisions with unprecedented speed and accuracy. AI-driven systems have evolved risk assessment beyond traditional statistical models by analyzing billions of variables simultaneously and detecting subtle correlations invisible to human analysts. In fraud detection, sophisticated anomaly detection algorithms establish individualized behavioral baselines for each customer, dramatically reducing false positives while preserving legitimate transactions. These systems identify fraudulent patterns in real-time, detect novel schemes, and recognize coordinated fraud rings with remarkable precision, translating directly to significant reduction in fraud losses and increased transaction volumes. Behavioral analytics has created unparalleled visibility into customer financial patterns, supporting both enhanced fraud prevention and hyper-personalized service offerings. As these technologies continue to mature, financial institutions must balance innovation with ethical considerations and regulatory compliance, recognizing that trustworthiness represents a powerful competitive advantage in an increasingly algorithm-mediated landscape.