FraudX AI: An Interpretable Machine Learning Framework for Credit Card Fraud Detection on Imbalanced Datasets

Abstract

Credit card fraud detection is a critical research area due to the significant financial losses and security risks associated with fraudulent activities. This study presents FraudX AI, an ensemble-based framework addressing the challenges in fraud detection, including imbalanced datasets, interpretability, and scalability. FraudX AI combines random forest and XGBoost as baseline models, integrating their results by averaging probabilities and optimizing thresholds to improve detection performance. The framework was evaluated on the European credit card dataset, maintaining its natural imbalance to reflect real-world conditions. FraudX AI achieved a recall value of 95% and an AUC-PR of 97%, effectively detecting rare fraudulent transactions and minimizing false positives. SHAP (Shapley additive explanations) was applied to interpret model predictions, providing insights into the importance of features in driving decisions. This interpretability enhances usability by offering helpful information to domain experts. Comparative evaluations of eight baseline models, including logistic regression and gradient boosting, as well as existing studies, showed that FraudX AI consistently outperformed these approaches on key metrics. By addressing technical and practical challenges, FraudX AI advances fraud detection systems with its robust performance on imbalanced datasets and its focus on interpretability, offering a scalable and trusted solution for real-world financial applications.