Product design question

Design a credit card fraud-detection system.

Practice this question out loud. An AI interviewer asks it, follows up like a real interviewer would, and scores your answer. Type or speak.

What this question tests

Product design for a fraud detection system, balancing detection accuracy with merchant and customer friction.

Clarify the scope: detecting fraudulent transactions at the point of sale or online checkout for merchants using this payment processor.
Identify the core tension: aggressive fraud detection reduces losses but increases false declines, frustrating legitimate customers.
Segment transaction risk using signals like amount, velocity, location mismatch, and device or card history.
Design the solution: a risk-scoring model routing low-risk transactions instantly, flagging medium-risk for lightweight verification, and blocking high-risk outright.
Add a feedback loop: confirmed fraud and confirmed false declines feed back into the model to continuously improve accuracy.
Define success: fraud loss rate balanced against false decline rate, tracked together since improving one often worsens the other.

Explicitly frames the core design tension, fraud loss versus false declines, a distinction central to any real fraud system.
Proposes a tiered risk response rather than a binary allow or block system, a more realistic, merchant-friendly design.
Names concrete risk signals grounded in how real fraud detection systems work.
Insists on tracking fraud rate and false decline rate together, since optimizing one alone gives a misleading picture.

Proposing a purely binary system that ignores the false-decline cost to legitimate merchants and customers.
Not naming concrete risk signals, staying too abstract about how detection works.
Measuring success by fraud rate alone without tracking false declines.

How would you handle a merchant who complains about legitimate transactions being blocked?
How would you validate the model's accuracy before deploying it broadly?
How would you handle fraud patterns that evolve over time to evade the model?