Blockchain-based Fraud Detection Systems in Retail Banking Transactions

Thesis Abstract

The increasing prevalence of cyber fraud in retail banking transactions presents a significant challenge to financial institutions, necessitating the development of innovative, secure, and efficient fraud detection mechanisms. Traditional systems, often reliant on centralized databases and rule-based algorithms, demonstrate vulnerabilities such as data tampering, delayed detection, and inability to adapt swiftly to emerging fraud patterns. This study aims to explore the potential of blockchain technology as a transformative solution to enhance fraud detection accuracy, transparency, and data integrity within retail banking environments. Specifically, it seeks to evaluate the effectiveness, feasibility, and operational integration of blockchain-based fraud detection systems, thereby addressing gaps related to data security, system resilience, and real-time anomaly detection. The research adopts a mixed-methods design, integrating quantitative analysis with qualitative insights to provide a comprehensive understanding of blockchain’s applicability in this domain. The quantitative component involves collecting data from a sample of 150 retail banking transactions across five major banks within a metropolitan financial hub, utilizing blockchain simulation tools and transaction logs to assess the detection accuracy of blockchain-enabled systems versus traditional methods. Data on transaction parameters, fraud incidence, and detection timestamps will be analyzed using regression analysis to determine the relationships between blockchain deployment and fraud detection efficacy. The qualitative component comprises semi-structured interviews with 20 banking security professionals and system developers, aiming to uncover practical considerations, perceived challenges, and contextual factors influencing blockchain integration, analyzed through thematic analysis aligned with the Technology Acceptance Model (TAM). The anticipated findings indicate that blockchain-based fraud detection systems significantly improve detection speed and accuracy, reducing false positives and negatives by at least 25% compared to traditional systems. The decentralized ledger’s transparency and immutability are expected to enhance trustworthiness, while real-time transaction validation could facilitate immediate responses to suspicious activities. Additionally, the study anticipates identifying key operational challenges, including scalability, interoperability, regulatory compliance, and cost implications, from stakeholder perspectives. These results will demonstrate that blockchain integration fosters a resilient, tamper-proof environment that addresses many vulnerabilities inherent in conventional fraud detection approaches. This research contributes novel empirical evidence to the emerging discourse on applying blockchain technology in financial security frameworks, extending theoretical understanding of technological innovation diffusion in banking systems. It advances the application of the Diffusion of Innovations Theory and the Unified Theory of Acceptance and Use of Technology (UTAUT) by providing insights into adoption factors, perceived benefits, and resistance barriers among banking practitioners. Theoretically, it bridges gaps between blockchain’s technical capabilities and practical deployment challenges, offering a comprehensive model for efficient integration. The study concludes that blockchain-based fraud detection systems offer substantial advantages for retail banking, notably in enhancing transaction integrity, operational transparency, and fraud mitigation capabilities. Nonetheless, it underscores the necessity of addressing technical and regulatory hurdles to realize full operational benefits. Accordingly, the thesis recommends that financial institutions prioritize investment in scalable blockchain infrastructure, conduct rigorous pilot programs, and engage regulatory bodies early in deployment phases. Future research should explore longitudinal impacts, cross-jurisdictional regulatory effects, and integration strategies with emerging technologies like artificial intelligence and biometrics to bolster fraud detection frameworks further. Overall, this study provides a foundational step toward establishing blockchain as a standard mechanism for safeguarding retail banking transactions against evolving fraud threats.