On-Device Privacy-Preserving Fraud Detection for Smart Consumer Environments Using Federated Learning

Abstract

This paper discusses an on-device artificial intelligence (AI) solution for real-time, privacy-preserving fraud detection in smart financial environments, ensuring privacy-preserving consumer transactions. We suggest a distributed, on-device fraud detection solution that uses federated learning (FL) to improve privacy while detecting fraudulent transactions efficiently across decentralized smart environments. In this work, we used several models, including reinforcement learning (RL) agent and Random Forest, and we tested their performance using several measures like accuracy, precision, recall, and F-score, ensuring their applicability to smart environments with resource constraints. The recommended mechanism also uses t-Distributed Stochastic Neighbor Embedding (t-SNE) and Principal Component Analysis (PCA) to reduce dimensions of data, visualize the results, and evaluate the success rate of transactions classified as fraudulent and non-fraudulent. In our methodology, we applied data collection, data preprocessing, and cleaning, and we evaluated the metrics of selected models to allocate resources effectively and support decision-making processes in edge-based fraud detection systems within smart environments.