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Federated Learning for Financial Fraud Detection

Book Chapter

Authors: Srinu Madem (Vignan's Institute of Information Technology, India), Suguna Margana (Independent Researcher, India), Vijaya Kittu Manda (PBMEIT, India), Theodore Tarnanidis (International Hellenic University, Greece), and Bruno Barbosa Sousa (Polytechnic University of Cávado and Ave, Portugal & UNIAG, Portugal & CiTUR, Portugal)

DOI: https://doi.org/10.4018/979-8-3373-2980-2.ch005

Book Name: Strategic Frameworks for Managing Risk in FinTech Ecosystems

ISBN: ISBN13: 9798337329802|ISBN13 Softcover: 9798337329819|EISBN13: 9798337329826

Publisher: IGI Global, USA

Editor(s): Syed Mohammad Faisal and Ahmad Khalid Khan

Book Chapter Number: 5

Publication Date: May 29, 2026

Pages: Pages 127-156 (30 pages)

Book Chapter Link on Publisher Website

Book Link on Publisher Website

Abstract: Federated Learning (FL) for detecting financial fraud is the central theme of this study. Modern FinTech ecosystems increasingly face the need to fight fraud by collaborating. The chapter addresses growing privacy concerns and data silo challenges in decentralized financial systems. Innovative methods that enable collaborative model training without compromising sensitive customer information are discussed. Quantitative analyses are employed to evaluate model performance under regulatory constraints. Data privacy, secure aggregation, and adaptive communication protocols are implemented in experimental setups. It discusses challenges such as non-IID data and adversarial attacks. Significant improvements in detection accuracy and reduced false positives are reported. The study offers strategic insights that benefit policymakers, financial institutions, and regulatory authorities. It contributes to advancing secure and resilient financial risk management in FinTech. The necessity for continuous innovation to address emerging fraud tactics in a dynamic digital landscape is stressed.

Keywords: federated learning, financial fraud detection, risk management, data privacy, secure aggregation, decentralized systems, fintech ecosystems, model training, regulatory compliance, collaborative analytics

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