Anomaly Detection in Financial Transactions Using Convolutional Neural Networks

Abstract

The rise of digital financial systems has brought unprecedented convenience but has also exposed users and institutions to various fraudulent activities. Anomaly detection plays a critical role in ensuring financial security by identifying unusual transaction patterns that may indicate fraud or other irregularities. Traditional statistical and rule-based approaches, though effective to some extent, often fall short when dealing with the increasing volume and complexity of financial data. This study proposes a novel approach to anomaly detection in financial transactions using Convolutional Neural Networks (CNNs), a class of deep learning models primarily known for their success in image processing tasks. In this work, transactional data are preprocessed and transformed into structured formats suitable for CNN input. By treating sequences of financial transactions as temporal-spatial matrices, the CNN model learns intricate patterns that distinguish normal from anomalous behavior. Our methodology includes a comprehensive pipeline involving data normalization, feature engineering, and the construction of multi-channel representations to exploit CNNs' strength in hierarchical feature learning. We evaluate our model on benchmark financial datasets and compare its performance against traditional machine learning algorithms such as Support Vector Machines (SVM), Random Forest, and Logistic Regression. The CNN-based model demonstrates superior performance in terms of accuracy, precision, recall, and F1-score. Additionally, it shows robustness in detecting rare anomalies while minimizing false positives, a critical requirement in real-time financial fraud detection systems. The results indicate that CNNs can effectively capture both local and global dependencies within financial transaction sequences, making them suitable for large-scale and high-dimensional data environments. This study contributes to the growing body of research advocating for the adoption of deep learning techniques in financial anomaly detection and opens up possibilities for integrating CNNs with real-time monitoring systems for enhanced financial security. Future research may focus on hybrid models combining CNNs with recurrent layers to capture long-term dependencies more effectively.