Enhancing security in financial transactions: a novel blockchain-based federated learning framework for detecting counterfeit data in fintech

Fintech is an industry that uses technology to enhance and automate financial services. Fintech firms use software, mobile apps, and digital technologies to provide financial services that are faster, more efficient, and more accessible than those provided by traditional banks and financial institutions. Fintech companies take care of processes such as lending, payment processing, personal finance, and insurance, among other financial services. A data breach refers to a security liability when unapproved individuals gain access to or pilfer susceptible data. Data breaches pose a significant financial, reputational, and legal liability for companies. In 2017, Equifax suffered a data breach that revealed the personal information of over 143 million customers. Combining federated learning (FL) and blockchain can provide financial institutions with additional insurance and safeguards. Blockchain technology can provide a transparent and secure platform for FL, allowing financial institutions to collaborate on machine learning (ML) models while maintaining the confidentiality and integrity of their data. Utilizing blockchain technology, FL can provide an immutable and auditable record of all transactions and data exchanges. This can ensure that all parties adhere to the protocols and standards agreed upon for data sharing and collaboration. We propose the implementation of an FL framework that uses multiple ML models to protect consumers against fraudulent transactions through blockchain. The framework is intended to preserve customer privacy because it does not mandate the exchange of private customer data between participating institutions. Each bank trains its local models using data from its consumers, which are then combined on a centralised federated server to produce a unified global model. Data is neither stored nor exchanged between institutions, while models are trained on each institution’s data.