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CREDIT CARD FRAUD DETECTION USING DATA MINING TECHNIQUES

Article in Seybold Report · September 2020

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Journal of Seybold Report ISSN NO: 1533-9211

CREDIT CARD FRAUD DETECTION USING DATA

MINING TECHNIQUES
Lawrence Borah1, Saleena B2, Prakash B3
1,2,3
School of Computer Science and Engineering, VIT, Chennai
lawrence.borah2019@vitstudent.ac.in, saleena.b@vit.ac.in,
prakash.bala@vit.ac.in

Abstract: Credit card fraud has become the most significantly popular issues in the credit card industry. The
principle thought process is to distinguish the various kinds of credit card misrepresentation and to audit
elective procedures that have been utilized in fraud detection. Depending upon various types of credit card
frauds faced by financial institutions like banks, or credit card industries, many different measures can be
implemented to reduce the frauds. The objective of the usage of these strategies and techniques is to minimize
the credit card fraud. There are certain open problems with the existing techniques that results some genuine
credit card clients as misclassified fraudulent. This paper focuses on incorporating the best classification
algorithm from a set of four different algorithms, which is likely to suggest the degree of fraudulent activities in
the field of financial domain.

1. Introduction

A credit card is a major convenient plastic card that contains individual data, for example, a
signature or picture, card numbers, or magnetic stripe/chip data and approves the individual
named on it to charge purchases or administrate to his account - charges for which he will
be charged occasionally. Today, the data on the card is accessed via robotized teller
machines (TMs), store bar code readers, banks and is additionally utilized in the online web
banking framework. They have a unique CCV number which is of most extreme
significance. Its security depends on the physical security of the plastic card just as the
protection of the credit card number [1]. There is a quick development in the quantity of
credit card exchanges which has prompted a considerable ascent in fraudulent activities.
Credit card fraud is a wide-extending term for theft and misrepresentation utilizing a credit
card as a fake fraudulent source of assets in a given exchange. By large numbers, the
measurable strategies and numerous information mining calculations are utilized to take
care of this fraud recognition issue. The majority of the credit card extortion location
frameworks also known as artificial intelligence depend on man-made reasoning, meta-
learning, and pattern matching [2].

Credit card frauds come in a wide variety of shapes and systems, like misrepresentation by
using any depiction's installment card, and this is only the beginning. Likewise the reasons
behind the misrepresentation of the card update. Others are meant to gain money from
accounts, while others wish for nothing to get merchandise. Over time the credit card
payment market has grown exponentially with the rise and universal Internet. Most
businesses and industries have transformed their business into online services to provide e-
commerce, ease of access, and connectivity to allow better productivity and accessibility for
their customers [3]. This development is of immense value because it attributes to improved
productivity and sustainability, but it still has its own limitations. A larger scope for risks
emerges along with this development. One of the most significant problems in conducting

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business on the internet is that when making the transaction, neither the card nor the
cardholder needs to be present [4]. This makes it difficult for the retailer to test whether or
not the client who is making a transaction is the genuine cardholder. This makes it
conveniently possible for a fraudster to conduct a fraudulent transaction.

The flow of this paper is as follows: Section 2 describes various types of frauds in the
financial domain, section 3 focusses on existing literature survey, section 4 discusses on
proposed methodology, the results are highlighted in section 5, and finally section 6
concludes the paper.

2. Types of Frauds and Payment Gateway

Various types of frauds in this paper include credit card frauds, application frauds, credit card
imprints, CNP (Card not present) fraud, credit card imprints /counterfeit fraud, and behavioral
frauds as shown in Figure 1.

Figure 1: Types of Credit card Frauds

A payment gateway is an e-commerce software service provider that authenticates

purchases via credit card to e-businesses, online merchants, etc. A Payment Gateway is
nothing short of a digital substitute for the 'Credit Card Payment' facilities we have in a
supermarket. And all the online retailers would like to handle all the purchases correctly.
A bridge to payment acts as a gateway between the website where the transaction takes
place and the bank. It seems transparent to the customers or we may tell the end-users,
but ensuring that the transactions come out clean without the intervention of any fraudster
is quite important for their transaction protection. When a purchase is done on the
internet, our credit card's encrypted data are forwarded to a payment gateway. The detail
is immediately offloaded. That greatly decreases the probability of the information being
accessed by a hacker. Next, the bank on the website gathers the payment gateway details
and allows contact with the card firms (Visa, MasterCard, etc.,). Eventually, the payment
provider conducts all back end verification from their servers and sends an acceptance to
the portal to pay.

3. Related Works

Dealing with transactions and fraudulent constraints are current challenges when learning

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from data sets with a massive amount of data. To make the work easier and understandable
the machine learning algorithms are used in various sectors of industry especially when it
comes to the computing field. These algorithms are developed by machine learners who are
specialized in the machine learning field with proper study of all the tools handled in the
respective field.

Different users use different Machine learning techniques to find the fraudulent in the credit
card industry, by using different credit card fraud detection algorithm. A Decision Tree [5] is
a conceptual model for classification and prediction. The structure can be represented as a
disjunction of conjunctions of features of instances. Support Vector Machine [6] is a
supervised machine learning model named as Support Vector Machine that analyses
classification and regression. Naïve Bayes classifier follows a common principle such that
every pair of features being classified is conditionally independent of each other. Random
Forest [7] [8] is an ensemble method that takes a subset of the entire data and derives several
decision trees. A technique called Bootstrap Aggregation integrates multiple decision trees in
finding the outcome rather than depending on individual decision trees. A systematic
approach[9][10] using “strict very fast Decision tree technique” VFDT algorithm Although
the VFDT has been widely used in data stream mining, several authors have suggested
modifications to increase its performance, putting aside memory concerns by proposing
memory-costly solutions. The experiments of the proposed method were carried out for the
credit card fraud detection domain with the sample benchmark datasets..

4. Proposed Methodology

The payment gateway, as is widely known, is a secured platform for accepting a transaction,
the information of which is given to verify its authenticity, and make the transfer feasible.
But, knowing how the program would operate to identify a scam if some transaction is
produced is crucial. The proposed program is seen as part of the payment gateway that
would test whether or not a transaction is fraudulent. It should function on the merchant's
data and the data present in the portal to payment. The following figure 2 shows the fraud
identification scheme proposed

Figure 2: Proposed Fraud detection System

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The fraud identification module will perform as follows:

 The payment gateway must provide credit card information, such as card number,
date of expiry, etc.
 The retailer will include information such as mailing address, sales number, date
and time of delivery, etc.
 The payment gateway must forward the appropriate specifications to the Fraud
Detection Program.
 Our suggested program would use effective data mining methods to train itself
and generate results using the best classification algorithm.
 The final result of a transaction (fraudulent or not) would be delivered to the
payment gateway, dependent on information.
 The outcome comprising the judgment and other related details will be provided
by the payment gateway administrator in the final UI report to the merchant

Within the framework, the random forest algorithm is used to evaluate the cardholder
data alongside the credit card information and the location of the transaction to model
real transactions as shown in Figure 3. The performance of random forest is likely to
suggest the degree of fraudulent activity with highest accuracy.

Figure 3: Methodology of the system

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5. Experimental Results
The dataset used for experimentation was retrieved from “kaggle.com”. The chosen dataset
has 3075 rows and 11 key features. The measures used for evaluating the performance are
precision, recall, and accuracy. Experimental results prove that the performance of the
random forest algorithm is more likely to suggest an accurate degree of fraudulent activities.
Figures 4 and 5 shows that the evaluation results of detecting fraudulent transactions have
improved using random forest over the other algorithms.

Figure 4: Comparative Analysis of Algorithms

Figure 5: Graphical representation of Comparative Analysis

The algorithm with better accuracy in identifying fraudulent transactions is incorporated in

the proposed system to improve the performance.

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6. Conclusion

Using the credit card fraud detection algorithm that we developed, credit card frauds can be
reduced by having the retailer know about the purchases that are extremely likely to be
fraudulent. Using the data mining technique along with the random forest algorithm, the
system's performance rate increases multiple folds and thus addresses the merchant support
function. While current schemes do the same at the moment on the market, this program is
built would focus especially on the industry's retailer side and would favor the retailer by
minimizing the costs the merchant needs to carry if a transaction becomes fraudulent. The
system relies on the merchant's sales and sale data and the data present in the payment
gateway for handling a transaction that reduces the capacity to identify fraud. The scheme
can become more effective in stopping fraudulent transactions in the future if the retailers
share the credit card user's use trend and the issuing bank even share the usage history of the
cardholder without affecting the card holder’s privacy.

REFERENCES
[1] Ayushi Agrawal, Shiv Kumar, Amit Kumar Mishra, "A Novel approach for Credit
Card Fraud Detection", 2nd International Conference on Computing for Sustainable
Global Development(INDIACom), 2015.
[2] N. Sivakumar, R. Balasubramanian, "Cheating identification in Visa Transactions:
Classification dangers Also counteractive action Techniques", universal diary for PC
science and majority of the data Technologies, vol. 6, no. 2, 2015.
[3] Ray-I Chang, Liang-Bin Lai, Wen-De Su, Jen-Chieh Wang, Jen-Shiang Kouh,
"Intrusion identification by Back propagation neural Networks for Sample-Query and
Attribute- Query", Research India Publications, pp. 6-10, 2006.
[4] V. G. T. Costa, A. C. P. L. Carvalho, S. Barbon, "Strict Very Fast Decision Tree: a
memory conservative algorithm for data stream mining", May 2018.
[5] A. Aye Khine, H. Wint Khine, "A Survey of Decision Tree for Data Streams to
Detect Credit Card Fraud", PROMAC-2019.
[6] Y. Sahin, E. Duman, "Detecting Credit Card Fraud by Decision Trees and Support
Vector Machines", IMECS, vol. 1, 2011.
[7] B Meenakshi, J. B.. S Gayathri, "Credit Card Fraud Detection Using Random
Forest", vol. 06, no. 03, March 2019, ISSN 2395-0072.
[8] M. Zareapoora, P. Shamsolmoalia, "Application of Credit Card Fraud Detection:
Based on Bagging Ensemble Classifier", International Conference on Intelligent
Computing Communication & Convergence (ICCC-2014).
[9] G. T. Costa, A. C. P. L. Carvalho, S. Barbon, "Strict Very Fast Decision Tree: a
memory conservative algorithm for data stream mining", May 2018.
[10] H. Yang, S. Fong, "Incremental optimization mechanism for constructing a decision
tree in data stream mining", Mathematical Problems in Engineering 2013, pp. 114-
144, 2013.

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