Credit Card Fraud Detection project

Abstract: For some time, there has been a strong interest in the ethics of banking (Molyneaux, 2007; George, 1992), as well as the moral complexity of fraudulent behavior (Clarke, 1994). Fraud means obtaining services/goods and/or money by unethical means, and is a growing problem all over the world nowadays. Fraud deals with cases involving criminal purposes that, mostly, are difficult to identify. Credit cards are one of the most famous targets of fraud but not the only one; fraud can occur with any type of credit products, such as personal loans, home loans, and retail. Furthermore, the face of fraud has changed dramatically during the last few decades as technologies have changed and developed. A critical task to help businesses and financial institutions including banks is to take steps to prevent fraud and to deal with it efficiently and effectively, when it does happen (Anderson, 2007). Anderson (2007) has identified and explained the different types of fraud, which are as many and varied as the financial institution’s products and technologies, such as Transaction products: credit and debit cards and checks, Relationship to accounts first, second and third parties, Business processes: application and transaction, Manner and timing short versus long term, Identify misrepresentation: embellishment, theft and fabrication, Handling of transaction: lost or stolen, not received, skimming and at hand, Utilization counterfeit, not present, altered or unaltered, Technologies ATM and Internet. Solutions for integrating sequential information in the feature set exist in the literature. The predominant one consists in creating a set of features which are descriptive statistics obtained by aggregating the sequences of transactions of the cardholders (sum of amount, count of transactions, location from where the payment is being made etc..). We used this method as a benchmark feature engineering method for credit card fraud detection. However, this feature engineering strategy raised several research questions. First of all, we assumed that these descriptive statistics cannot fully describe the sequential properties of fraud and genuine patterns and that modelling the sequences of transactions could be beneficial for fraud detection. Moreover, the creation of these aggregated features is guided by expert knowledge whereas sequence modelling could be automated thanks to the class labels available for past transactions. Finally, the aggregated features are point estimates that may be complemented by a multi-perspective univariate description of the transaction context. We proposed a multi-perspective HMM-based automated feature engineering strategy in order to incorporate a broad spectrum of sequential information in the transactions feature sets. In fact, we model the genuine and fraudulent behaviors of the merchants and the card-holders according to two univariate features: the country from where the payment is being made and the amount of each of the transactions being made. Moreover, the HMMbased features are created in a supervised way and therefore lower the need of expert knowledge for the creation of the fraud detection system. In the end, our multiple perspectives HMM-based approach offers automated feature engineering to model temporal correlations so as to complement and possibly supplement the use of transaction aggregation strategies in order to improve the effectiveness of the classification task. Experiments conducted on a large real world credit card transaction dataset (46 million transactions from belgium card-holders between March and May 2015) have shown that the proposed HMMbased feature engineering allows for an increase in the detection of fraudulent transactions when combined with the state-ofthe-art expert-based feature engineering strategy for credit card fraud detection. To conclude, this work leads to a better understanding of what can be considered contextual knowledge for a credit card fraud detection task and how to include it in the classification task in order to get an increase in fraud detection. The method proposed can be extended to any supervised task with sequential datasets. The main aims are, firstly, to identify the different types of credit card fraud, and, secondly, to review alternative techniques that have been used in fraud detection. Indeed, transaction products, including credit cards, are the most vulnerable to fraud. On the other hand, other products such as personal loans and retail are also at risk, and have serious ethical conflicts. Keywords: Behavior and Location Analysis (BLA); Fraud Detection System (FDS); Automated Teller Machine (ATM); Credit Card Fraud Detection; DB: Database.