Privacy-driven federated AI in financial fraud detection and risk scoring

Yaramolu, Leela Sri Kalyan Gowtham (2025) Privacy-driven federated AI in financial fraud detection and risk scoring. World Journal of Advanced Engineering Technology and Sciences, 15 (1). pp. 2492-2504. ISSN 2582-8266

Federated Learning emerges as a transformative approach for financial institutions seeking to harness artificial intelligence while preserving data privacy. This article explores how federated learning fundamentally reimagines AI development in the financial sector by enabling collaborative model training without exposing sensitive customer information. Unlike traditional centralized approaches that require data aggregation, federated systems allow financial institutions to develop sophisticated models while maintaining data locality and regulatory compliance. The article examines implementation patterns across leading financial organizations, technical challenges including communication overhead and statistical heterogeneity, and security considerations particular to distributed learning networks. It highlights how institutions have deployed federated systems to enhance fraud detection and risk assessment capabilities while respecting jurisdictional boundaries. The article further explores emerging directions, including cross-border collaboration frameworks, customer-level federated learning, and hybrid cloud-edge architectures that promise to extend the benefits of privacy-preserving AI across the financial ecosystem, ultimately creating more resilient and comprehensive financial intelligence networks.