Enhancing Risk Management and Fraud Detection in the U.S. Financial Industry Through Machine Learning Algorithms: Applications, Challenges, and Future Directions

Author(s)

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Volume 14 - August 2025 (08)

Abstract

The U.S. financial industry is a bulwark of the global economy; hitherto, it faces unprecedented challenges from rapidly emerging risk factors and growing sophistication of fraud schemes. From identity theft to account takeovers to big-money money laundering, financial crimes perpetrated today have increased in frequency and complexity, costing billions annually and eroding public confidence in financial systems. Conventional fraud management frameworks and much of the fraud detection toolkit have their limitations in addressing fast evolving and dynamic threats because they are often based on static rule and/or historical patterns. As a result, ML has revolutionized risk management by bringing excellent processing power of massive datasets to bear interspersed with uncovering hidden correlations and adapting detection in real time. The discussion entails ML application into the risk management and fraud detection processes of the U.S. financial sector and it lays bare the potentialities and limitations in doing so.
While the researcher(Author) reviews various ML applications, from abnormality detection models indicating unusual transactions to predictive analytics systems assessing credit and market risk with more accuracy than conventional models, these are followed by giving special consideration to real-world case studies of systems developed and applied by institutions such as JPMorgan Chase, Mastercard, and PayPal, focusing on the use of ML to minimize false positives and increase speed of detection. Besides, challenges abound in the practical adoption of ML. Such challenges include regulatory requirements, data privacy concerns, algorithmic bias, high implementation costs, and the “black box” effect of some complex models. Future directions are then put into view, including Explainable AI, federated learning, hybrid detection systems, and stronger governance frameworks. The article concludes that while it might not be panacea, ML is a good instrument for enhancing resiliency, building fraud defenses, and preserving that confidence on which the U.S. financial industry heavily relies.

Keywords

Machine Learning, Fraud Detection, Risk Management, U.S. Financial Industry, Artificial Intelligence, Cybersecurity, Predictive Analytics.

References

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Cite this Article:

Sodiq Ogunmola, Enhancing Risk Management and Fraud Detection in the U.S. Financial Industry Through Machine Learning Algorithms: Applications, Challenges, and Future Directions, International Journal of Management Sciences and Business Research 08(2025):07-19 DOI: