Design Payment Fraud Detection

Real-time fraud detection with ML inference, feature store, and event streaming.

Functional requirements

  • Score every payment transaction for fraud risk in real time before authorisation.
  • Ingest raw transaction events from a Kafka stream at up to 50,000 events per second.
  • Serve pre-computed user and merchant feature vectors from a low-latency feature store.
  • Invoke an ML model endpoint to return a fraud probability score (0–1) per transaction.
  • Apply configurable rule-based guardrails on top of the ML score for immediate blocking.
  • Emit accept / review / block decisions to downstream payment processors.
  • Store decision history for each transaction for audit, replay, and model retraining.
  • Provide a case-management interface for fraud analysts to review flagged transactions.
  • Support A/B model shadow-testing without affecting live decision throughput.
  • Allow real-time rule updates by ops team without restarting the scoring pipeline.

Non-functional requirements

  • Latency: fraud scoring decision must be returned within 50 ms at p99 to avoid blocking checkout.
  • Throughput: sustain 50,000 transactions per second with headroom for 3× traffic spikes.
  • Availability: 99.999% uptime; a system outage must default to a safe fallback (approve with flag).
  • Accuracy: false positive rate below 0.5% to avoid blocking legitimate customers.
  • Scalability: horizontally scalable scoring workers; feature store must handle 200,000 reads per second.
  • Durability: every transaction event and decision persisted durably; no data loss on node failure.
  • Consistency: feature values served must be no more than 60 seconds stale.
  • Security: PCI-DSS compliant storage and transit encryption; strict role-based access to raw card data.
  • Observability: real-time dashboards for decision distribution, model drift, and pipeline lag.
  • Compliance: full audit trail retained for 7 years; GDPR-compliant data minimisation for stored features.

How the design evolves

Stage 1: Monolith Rule Engine

Start with a single service applying rules to payments.

What was missing: No separation of concerns, no redundancy, no async, no observability.

Why that's risky: Single point of failure, no protection from spikes, no monitoring.

What gets added: Nothing yet (MVP).

Trade-offs: Simple, but not production ready.

Stage 2: Add Edge, API Gateway, and Rate Limiting

Introduce edge, API gateway, and rate limiting for security and performance.

What was missing: No edge security, no rate limiting, no separation of gateway and rules.

Why that's risky: Vulnerable to DDoS, no traffic shaping, gateway logic not isolated.

What gets added: Edge, API gateway, and rate limiter.

Trade-offs: Slightly more complex.

Stage 3: Horizontal Scaling and Load Balancing

Add load balancer and multiple rule engines for scale and redundancy.

What was missing: No redundancy, no horizontal scaling, single rule engine bottleneck.

Why that's risky: Single point of failure, cannot handle spikes.

What gets added: Load balancer, multiple rule engines.

Trade-offs: More complex deployment.

Stage 4: ML Inference and Feature Store

Introduce ML inference and feature store for advanced scoring.

What was missing: No ML scoring, no feature store, only rules.

Why that's risky: Rules alone miss subtle fraud, no learning from new patterns.

What gets added: ML inference, feature store.

Trade-offs: More moving parts, more operational complexity.

Stage 5: Streaming Analytics, Async Queue, and Monitoring

Add streaming analytics, async queue, worker pool, and monitoring for observability and feedback.

What was missing: No async analytics, no monitoring, no idempotency, no feedback loop.

Why that's risky: No observability, analytics can block fraud scoring, no alerting.

What gets added: Async queue, worker pool, monitoring/logging, idempotency.

Trade-offs: More moving parts, eventual consistency for analytics.

Frequently asked questions

How do you reduce false positives in fraud detection?

Combine rules with ML scores and calibrate thresholds using offline evaluation data.

How do you handle feature store consistency?

Use batch + streaming updates and accept eventual consistency for real-time scoring.

Why start with a rule engine before ML?

Rules provide immediate coverage and clear explanations while ML models mature.

How does the ML inference tier stay low latency?

Keep feature reads local and precompute heavy features to avoid synchronous lookups.

Why stream transactions to analytics?

Streams power real-time monitoring and offline model retraining without blocking scoring.

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