Abstract: The rapid growth of e-commerce, mobile wallets, and digital banking services has changed the way people and businesses conduct financial transactions. While these advancements have increased convenience and accessibility, they have also created significant security risks, such as identity theft, phishing assaults, account takeovers, and large-scale financial crime. Traditional rule-based security systems, while helpful in some cases, are becoming ineffective in fighting fraudsters' developing strategies. In this context, Artificial Intelligence (AI) has emerged as a powerful tool for improving online payment security by enabling intelligent, adaptive, and real-time fraud detection.

AI-powered security models can scan massive volumes of transactional data, user activity, and contextual information to uncover tiny irregularities that traditional detection approaches often miss. Neural networks, random forests, and support vector machines are common machine learning methods used to create predictive models that can accurately distinguish between legal and fraudulent transactions. Unsupervised learning techniques are also used to find hidden patterns and detect previously unknown dangers, while Natural Language Processing (NLP) can help identify phishing emails, phony websites, and suspicious conversations.

The combination of AI and real-time monitoring enables preemptive responses by stopping questionable transactions before they are conducted, reducing financial loss and increasing customer trust. Furthermore, AI systems are constantly learning and adapting to new attack vectors, making them resilient to developing attacks. Future improvements, like explainable AI, federated learning for privacy-preserving fraud detection, and blockchain integration, are projected to improve the security and transparency of online payment systems.

This paper underlines the expanding relevance of Artificial Intelligence in protecting online payments, assesses the efficacy of current AI-based solutions, and underscores the importance of continual innovation in developing strong, scalable, and trustworthy financial systems.

Downloads: | DOI: 10.17148/IARJSET.2025.12927