INTRODUCTION TO CASE STUDY

Fraud detection has become a critical challenge for financial institutions, demanding
sophisticated technologies to mitigate risks and protect customers. American Express, a global
leader in financial services, has embraced big data analytics and machine learning to enhance
its fraud detection capabilities. By processing vast amounts of transaction data in real time, the
company can swiftly identify anomalies, detect fraudulent patterns, and prevent unauthorized
transactions with remarkable accuracy.

This case study examines American Express’s strategic shift from traditional, rule-based fraud
detection to a dynamic, data-driven approach. By leveraging big data and predictive modeling,
the company has enhanced its ability to identify fraudulent activities while minimizing false
positives.

The report explores how American Express utilizes vast transactional datasets to strengthen
security and safeguard customer trust. It will analyze the specific analytical techniques
employed, including machine learning algorithms, and evaluate their impact on fraud
prevention efficacy.

AMERICAN EXPRESS (AMEX)

Global Reach
American Express is the fourth-largest card network in the world by purchase volume,
highlighting its major role in global transactions. It connects millions of customers and
businesses worldwide, offering seamless payment services across regions including America,
Europe, Africa, the Middle East, and Asia-Pacific. Its international presence is visible in key
global hubs like Shanghai, Hong Kong, Singapore, and the Philippines, indicating its deep-
rooted operations and customer base.

Headquarters
The company is headquartered in New York, US, in a well-known building called the American
Express Tower. This location symbolizes its strong presence in the financial capital of the
world.
HISTORY AND AMEX IN THE FINANCIAL INDUSTRY

History
Amex was founded in 1844 by Henry Wells and William G. Fargo. It began as a messenger
company, primarily transporting money, goods, and financial instruments. Over time, it
transformed into one of the most respected global financial service providers.

Presence in the Industry

Amex today offers premium financial solutions and is especially known for its exclusive
rewards programs. It competes with other major players like Visa, Mastercard, and Discover,
but sets itself apart through its customer loyalty, trust, and strong brand value.

PRODUCTS AND SERVICES

PRODUCTS

American Express offers a diverse range of financial products that cater to individuals,
businesses, and corporate clients.

1. Credit Cards

American Express provides various credit cards tailored for different spending habits and
preferences. These cards allow users to make purchases on credit, repay either partially or in
full, and earn reward points or cashback. Different cards are designed to meet the needs of
travellers, shoppers, and small businesses.

2. Charge Cards

Charge cards are a unique offering from American Express. These cards do not have a preset
spending limit but must be paid off in full each month. They are often chosen by individuals
who want access to exclusive rewards and services without the risk of long-term debt.

3. Prepaid Cards
These are reloadable cards that can be used for everyday purchases. They are useful for
budgeting and are a good alternative for those who do not qualify for credit cards or prefer not
to use one. No credit history is required to use prepaid cards.

4. Gift Cards

American Express issues gift cards that can be used at a wide range of retail stores and online
platforms. These are commonly used for gifting purposes and come in both physical and digital
forms.

5. Savings and Banking Products

Through its banking division, American Express provides high-yield savings accounts and
certificates of deposit. These products offer competitive interest rates and are aimed at
individuals who want to grow their savings securely and efficiently.

SERVICES

Along with its products, American Express provides several valuable services that enhance the
customer experience.

1. Rewards and Loyalty Programs

American Express has a strong rewards system known as the Membership Rewards program.
Customers earn points based on their spending, which can be redeemed for travel, shopping,
gift cards, and more. This program helps build long-term customer loyalty.

2. Travel Services

The company offers travel-related services such as booking assistance, insurance coverage, car
rentals, and emergency travel support. Premium cardholders receive additional benefits like
access to airport lounges and hotel privileges, making it a popular choice among frequent
travellers.

3. Fraud Protection and Security

American Express employs advanced security measures to protect customer information and
prevent fraudulent transactions. Features include real-time alerts, identity verification systems,
and zero-liability policies for unauthorized purchases.

4. Customer Support

The company is recognized for its reliable and responsive customer service. Support is
available 24/7 through various channels including phone and online chat. American Express
ensures that issues such as lost cards or disputed charges are handled promptly.

5. Buy Now, Pay Later Services

American Express offers flexible payment options such as the “Plan It” feature, which allows
users to split larger purchases into equal monthly payments. This helps customers manage their
finances more effectively and plan their expenses.

PROBLEMS FACED BY AMERICAN EXPRESS IN FRAUD

DETECTION

1. High False Positives in Fraud Detection

One of the major challenges American Express faced was the high rate of false
positives, where legitimate transactions were incorrectly flagged as fraudulent.
This was primarily due to the rule-based fraud detection system, which operated
on predefined conditions. While these rules helped in identifying suspicious
transactions, they often resulted in the blocking of genuine purchases, frustrating
cardholders. Frequent transaction declines led to customer dissatisfaction, as
users had to go through lengthy verification processes to restore access to their
accounts. Additionally, the manual review process for flagged transactions was
slow, leading to delays in resolving cases.
2. Increasing Complexity of Fraud Techniques

Over the years, fraudsters developed sophisticated methods to bypass American

Express's existing fraud detection mechanisms. With the rise of artificial
intelligence (AI)-driven attacks, criminals used machine learning techniques to
identify loopholes in Amex’s security framework. Another growing threat was
synthetic identity fraud, where fraudsters combined real and fake identity
information to create new credit profiles, making them difficult to detect.
Moreover, social engineering scams became more prevalent, where fraudsters
manipulated customers or employees into revealing sensitive information. The
traditional fraud detection models, which were primarily rule-based, struggled to
adapt to these evolving threats, making Amex vulnerable to financial losses.

3. Scalability Challenges in Transaction Monitoring

As a global financial services provider, American Express processes millions of

transactions daily. The increasing volume of transactions created significant
challenges for its fraud detection system, which lacked the scalability required to
efficiently analyse large datasets. During peak periods, such as holiday shopping
seasons or major online sales events, the system became overwhelmed, leading
to delayed fraud detection. This inefficiency allowed fraudsters to exploit the
system by conducting multiple unauthorized transactions before being flagged.
Additionally, high-volume transactions required real-time analysis, but the
existing infrastructure struggled to keep up, resulting in missed fraud cases.

4. Delays in Fraud Detection and Response Time

The older fraud detection system at American Express relied on batch processing,
meaning fraudulent activities were detected only after transactions were
completed, instead of being flagged in real time. This delay gave fraudsters an
opportunity to exploit stolen card details, making multiple high-value
transactions before the fraud was identified. By the time a fraudulent activity was
detected, significant financial damage had already occurred. Customers who
reported unauthorized transactions also faced delays in fraud investigation and
resolution, making it difficult for them to recover lost funds quickly. This
inefficiency in fraud response led to customer frustration and loss of trust in
Amex’s security measures.

5. Inconsistent Regulatory Compliance and Legal Scrutiny

American Express has faced regulatory scrutiny due to its inability to prevent
fraud effectively in certain high-risk transactions. In 2025, the company was fined
$138 million for failing to implement sufficient fraud prevention measures in
specific sales and marketing practices. Investigations revealed that Amex’s fraud
detection system failed to comply with updated financial regulations, particularly
in monitoring high-risk transactions and preventing unauthorized charges.
Additionally, the company struggled to keep up with changing compliance
requirements, leading to further legal risks and potential reputational damage.

6. Customer Complaints and Trust Issues

The inefficiencies in American Express’s fraud detection system resulted in an

increase in customer complaints. Many cardholders struggled to reach the fraud
support team when unauthorized transactions occurred, leading to frustration and
delays in resolving their cases. Additionally, customers who had genuine
transactions wrongly flagged experienced embarrassment and inconvenience,
especially during international travel or online purchases. Due to repeated fraud-
related issues, high-value customers closed their accounts, leading to a loss of
revenue for Amex. The company also faced negative media coverage, which
further damaged its reputation as a secure financial service provider.

7. Insider Fraud and Security Gaps

While external fraud was a significant issue, insider fraud also posed a serious
challenge for American Express. Internal investigations revealed that some
employees were involved in manipulating customer data for fraudulent activities.
Additionally, there were security gaps in internal fraud monitoring, allowing
unauthorized access to sensitive customer information. These security breaches
made Amex customers more vulnerable to identity theft and phishing scams. The
lack of robust internal monitoring systems meant that fraudulent activities by
employees went undetected for extended periods, further exacerbating financial
and reputational risks.

DATA COLLECTION AND ANALYSIS

American Express has successfully leveraged Big Data and AI-driven analytics to
enhance fraud detection, credit underwriting, and overall business decision-making.
With over $1 trillion in transactions annually, the company collects vast amounts of
data from its 150 million+ cardholders and millions of merchants worldwide. The
ability to process and analyze this data in real-time has played a critical role in American
Express's success in preventing fraud and assessing customer creditworthiness.

One of the key challenges the company faced in its data-driven transformation was
bridging the gap between its West Coast data science team and East Coast business
operations. To address this issue, American Express implemented a strategy known as
the “democratization” of data, which involved developing user-friendly data tools
that enabled business decision-makers to leverage AI insights without requiring deep
technical expertise. This approach not only improved collaboration between
departments but also allowed for quicker and more effective decision-making in areas
like fraud prevention and credit risk assessment.

Despite these advancements, American Express continues to face challenges in its data
collection and analysis efforts. One significant issue is the occurrence of false positives
in fraud detection, where legitimate transactions may be flagged incorrectly, causing
inconvenience to customers. Additionally, the growing concerns around data privacy
and regulatory compliance pose a challenge, as authorities increasingly scrutinize the
use of personal data for financial decision-making. The company also faces difficulties
in integrating legacy systems with modern AI tools and competing for top data
science talent in a market dominated by tech giants like Google, Amazon, and
Microsoft.

Data Collection Methods

a) Transactional Data Collection

Each time a cardholder makes a purchase or a merchant processes a sale, American
Express gathers transaction-related information, such as:

• Cardholder details (name, card number, spending behavior)

• Merchant information (location, industry, historical transaction trends)
• Purchase specifics (amount, time, type of product/service)

b) Enhanced Authorization (EA) System

To strengthen fraud detection, American Express introduced Enhanced Authorization

(EA), which collects additional data points beyond standard transaction details. These
include:

• IP address – Helps verify whether a transaction originates from a known or

suspicious location.
• Email and shipping address – Cross-referenced with past transaction records
to identify inconsistencies.
• Device and browser information – Identifies unusual access patterns that may
indicate fraudulent activity.

c) Big Data Infrastructure

To handle the enormous volume of data generated daily, American Express upgraded
its data storage and processing systems in 2010 by adopting Apache Hadoop, an open-
source framework designed for large-scale data management.

d) Customer Interaction Data

American Express also gathers data from:

• Customer feedback and complaints – To detect patterns in fraudulent claims.

• Customer service interactions – Identifying potential fraud risks through
reported card issues.

Data Analysis Techniques

Once data is collected, American Express applies advanced AI and Machine Learning (ML)
algorithms to detect fraud and assess credit risk.
a) Fraud Detection through Machine Learning

The company’s ML models analyze thousands of data points in real-time to assess

transaction legitimacy. Key techniques include:

• Pattern Recognition – Detecting deviations from a customer’s usual spending

behavior.
• Anomaly Detection – Identifying high-risk transactions based on unusual spending
trends.
• Geolocation Analysis – Flagging transactions made from locations inconsistent with a
cardholder’s past activity.

b) Predictive Analytics for Credit Underwriting

American Express leverages predictive modeling to evaluate creditworthiness, using:

• Spending history and repayment behavior – Assessing a customer’s financial

stability.
• Market and economic trends – Adjusting credit risk models based on external
factors.
• Behavioral analytics – Predicting default risks by studying past user actions.

c) Democratization of Data

To bridge the gap between its West Coast data science team and East Coast business team,
American Express developed tools that enable business decision-makers to use AI-driven
insights without needing advanced technical expertise. This ensures:

• Faster fraud detection response times.

• Business teams can access real-time risk assessments.
• Improved communication between data scientists and executives.

Challenges in Data Collection and Analysis

Despite its success, American Express faces several challenges:

• False Positives in Fraud Detection – Some legitimate transactions are flagged

incorrectly.
• Data Privacy Regulations – Increasing scrutiny on the use of personal data.
• Integration of Legacy Systems – Ensuring old systems work seamlessly with modern
AI-driven tools.
• Talent Acquisition – Competing with tech giants like Google and Amazon for skilled
data scientists.
American Express has established itself as a leader in Big Data-driven financial
services by investing in AI, machine learning, and real-time analytics. Its ability to
collect, process, and analyze vast amounts of transaction data has significantly
enhanced fraud detection and credit assessment, creating a secure and efficient
payment ecosystem. However, as data privacy regulations continue to evolve, the
company must remain adaptive in ensuring compliance while maintaining its
competitive edge in data-driven innovation.

Machine Learning (ML) & Artificial Intelligence

(AI) in Fraud Detection at American Express
American Express utilizes advanced Machine Learning (ML) and Artificial Intelligence
(AI) technologies to detect and prevent fraudulent activities, ensuring secure
transactions while minimizing disruptions for genuine users. With financial fraud
evolving through increasingly sophisticated methods, the company has implemented a
multi-layered fraud detection system that integrates both Supervised and Unsupervised
Learning Models to proactively identify and mitigate risks.

Supervised Learning Models such as Decision Trees, Random Forest, and XGBoost
form the foundation of American Express’s fraud detection framework. These models
are trained on vast datasets of historical transactions, including both fraudulent and
legitimate records. By analyzing past patterns, they can accurately classify transactions
as either suspicious or safe in real time. The incorporation of ensemble learning
techniques, including Random Forest and Gradient Boosting (XGBoost), improves
predictive accuracy by combining multiple models to make more reliable fraud
detection decisions.

Since fraudsters constantly develop new tactics that do not always conform to existing
patterns, Unsupervised Learning Models are also employed. These include Clustering
and Anomaly Detection techniques, which do not rely on labeled data but instead assess
transaction behavior to identify outliers and irregular patterns. Clustering algorithms
group similar transactions together, flagging those that significantly deviate from the
norm for further investigation. Additionally, Anomaly Detection methods, such as
Autoencoders and Isolation Forests, help uncover previously unseen fraudulent
activities, allowing for a swift response to emerging threats.

To identify more complex fraud patterns that traditional ML models might overlook,
Neural Networks and Deep Learning play a crucial role. Recurrent Neural Networks
(RNNs) and Convolutional Neural Networks (CNNs) analyze sequential transaction
data, capturing intricate behavioral trends across multiple accounts and detecting subtle
anomalies indicative of fraudulent activity. By integrating self-learning AI systems,
these fraud detection models continuously improve, adapting to new fraud techniques
without the need for manual rule-based adjustments.
For real-time fraud detection, American Express leverages Big Data and Distributed
Computing Technologies such as Hadoop and Apache Spark. These systems allow the
processing of vast amounts of transactional data across distributed environments,
enabling fraud detection models to analyze millions of transactions per second. With
real-time streaming analytics, fraudulent transactions can be flagged immediately,
reducing financial risks while ensuring a seamless experience for legitimate users.

Additionally, Behavioral Analytics enhances fraud prevention by monitoring individual

customer spending patterns. American Express tracks purchase history, location-based
transactions, spending behaviors, and device usage to establish unique behavioral
profiles for each customer. If a transaction significantly deviates from an individual’s
usual spending habits—such as a sudden large purchase in a foreign country or multiple
high-value transactions in a short period—the system generates an alert for further
verification. This AI-driven behavioral monitoring helps improve fraud detection
accuracy while reducing false positives that could unnecessarily disrupt genuine
transactions.

In summary, American Express employs a comprehensive AI-powered fraud detection

system, combining Supervised and Unsupervised Learning Models, Deep Learning, Big
Data Processing, and Behavioral Analytics. This proactive approach not only
strengthens fraud prevention but also ensures a secure and seamless transaction
experience for millions of users worldwide.
FINAL OUTCOME

American Express has made significant strides in combating fraud by leveraging

artificial intelligence (AI), big data analytics, and real-time monitoring. With the rise of
online transactions, fraudulent activities have also become more sophisticated, posing
serious risks to financial security. To address this, American Express shifted from
traditional rule-based fraud detection to advanced machine learning models that can
detect suspicious activities instantly. This transformation has not only enhanced fraud
prevention but also strengthened customer trust and improved overall business
efficiency.

Real-Time Fraud Detection

One of the most notable outcomes of this initiative is the ability to detect fraud in real
time. Previously, fraud detection systems relied on static rules, which often resulted in
delayed responses and a high number of false positives. Now, American Express utilizes
advanced predictive modeling and AI-driven analytics to monitor transactions as they
occur. These models analyze factors such as transaction history, spending patterns,
location data, and device information to flag any unusual behavior immediately. This
proactive approach has helped the company prevent fraudulent transactions before they
happen, making financial transactions safer and more secure.

Financial Impact

The adoption of AI-powered fraud detection has had a significant financial impact on
American Express. Fraudulent transactions that previously went undetected are now
being identified and blocked, saving the company billions in potential losses.
Additionally, the number of false positives—where legitimate transactions are
mistakenly flagged as fraudulent—has decreased by more than 50%. This reduction in
false positives not only improves efficiency but also reduces operational costs
associated with investigating flagged transactions. By implementing real-time fraud
detection, American Express has successfully optimized its fraud prevention strategy,
ensuring that both the company and its customers benefit from a more secure financial
environment.

Enhanced Customer Experience

A key advantage of the new fraud detection system is the improvement in customer
experience. False transaction declines can be frustrating for customers, leading to
inconvenience and a lack of trust in the financial institution. With more accurate fraud
detection, American Express ensures that legitimate transactions go through smoothly,
while only fraudulent ones are blocked. This has significantly improved customer
satisfaction, as cardholders can now make purchases without unnecessary disruptions.
Additionally, the company’s proactive fraud prevention measures help reassure
customers that their financial data is well-protected.
Continuous Learning and Adaptation

What makes the new fraud detection system even more effective is its ability to
continuously learn and adapt. Fraud tactics are constantly evolving, with cybercriminals
finding new ways to bypass security measures. To counter this, American Express
employs machine learning algorithms that refine themselves over time. The system
studies emerging fraud patterns, updates its models, and enhances its accuracy with each
transaction analyzed. Technologies such as deep learning and neural networks help
detect complex fraud schemes, ensuring that American Express stays ahead of evolving
threats. This continuous improvement process ensures long-term effectiveness and
security.

By integrating AI, machine learning, and real-time data analytics, American Express
has successfully revolutionized its fraud detection capabilities. This transformation has
resulted in faster and more accurate fraud identification, substantial financial savings,
and an improved customer experience. The company’s commitment to innovation has
not only strengthened its security framework but also set a new benchmark in fraud
prevention within the financial industry. Moving forward, American Express will
continue to refine its fraud detection strategies, ensuring that its customers enjoy a
seamless and secure payment experience.

This case study demonstrates the power of data-driven solutions in enhancing financial
security. By staying at the forefront of technology, American Express has reaffirmed its
position as a leader in the financial services industry, offering its customers a safe and
reliable platform for transactions worldwide.

CONCLUSION
American Express' adoption of AI-driven fraud detection has significantly
strengthened its financial security framework, reduced fraudulent transactions and
enhanced customer trust. By leveraging machine learning, real-time analytics, and
continuous adaptation, the company has successfully minimized financial losses while
improving operational efficiency. The shift from traditional rule-based systems to
predictive modelling has not only optimized fraud prevention but also enhanced the
overall customer experience by reducing false positives and transaction disruptions.

This transformation highlights the importance of data-driven innovation in modern

financial services. As cyber threats continue to evolve, American Express remains
committed to refining its fraud detection strategies, ensuring a secure and seamless
transaction experience for its customers. Through its proactive approach, the company
sets a benchmark in fraud prevention, reinforcing its position as a leader in the
financial industry.