Fraud Analytics
Fraud Analytics
Fraud Analytics
Abstract
Credit card plays a very important rule in today's economy. It becomes an unavoidable part of
household, business and global activities. Although using credit cards provides enormous benefits
when used carefully and responsibly,significant credit and financial damagesmay be causedby
fraudulent activities. Many techniques have been proposed to confront thegrowthin credit card fraud.
However, all of these techniques have the same goal of avoiding the credit card fraud; each one has
its own drawbacks, advantages and characteristics. In this paper, after investigating difficultiesof
credit card fraud detection, we seek to review the state of the art in credit card fraud detection
techniques, datasets and evaluation criteria.The advantages and disadvantages of fraud detection
methods are enumerated and compared.Furthermore, a classification of mentioned techniques into
two main fraud detection approaches, namely, misuses (supervised) and anomaly detection
(unsupervised) is presented. Again, a classification of techniques is proposed based on capability to
process the numerical and categorical datasets. Different datasets used in literatureare then described
and grouped into real and synthesized data and the effective and common attributesare extracted for
further usage.Moreover, evaluation employed criterions in literature are collected and
discussed.Consequently, open issues for credit card fraud detection are explained as guidelinesfor
new researchers.
Keywords: Credit Card, Fraud Classification, Fraud Detection Techniques
1. Introduction
At the current state of the world, financial organizations expand the availability of financial
facilitiesbyemployingof innovative servicessuch ascredit cards, Automated Teller Machines (ATM),
internet and mobile banking services. Besides, along with the rapid advances of e-commerce,the use
of credit card has become a convenience and necessary part of financial life. Credit card is a payment
cardsupplied to customers as a system of payment. There are lots of advantages in usingcredit cards
such as:
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Ease of purchase
Credit cards can make life easier. They allow customers to purchase on credit in arbitrary
time, location and amount, without carrying the cash.Provide a convenient payment method
for purchases made on the internet, over the telephone, through ATMs, etc.
Keep customer credit history
Having a good credit history is often important in detecting loyal customers. This history is
valuable not only for credit cards, but also for other financial serviceslike loans, rental
applications, or even some jobs. Lenders and issuers of creditmortgage companies, credit card
companies, retail stores, and utility companies can review customer credit score and history
to see how punctualand responsible customers are in paying back their debts.
Protection of Purchases
Credit cards may also offer customers, additional protection if the purchased
merchandisebecomes lost, damaged, or stolen. Both the buyer‟s credit card statement and
company can confirmthat the customer has bought if the original receipt is lost or stolen. In
addition, some credit card companies provideinsurance forlarge purchases.
In spite of all mentioned advantages, the problem of fraud is a serious issue ine-banking services that
threaten credit card transactions especially. Fraud is an intentional deceptionwith the purpose of
obtaining financial gain or causing loss by implicit or explicit trick.Fraud is a public law violation in
which the fraudster gains an unlawful advantage or causes unlawful damage. The estimation
ofamount of damage made by fraud activities indicates that fraud costs a very considerable sum of
money.Credit card fraud is increasing significantly with the development of modern technology
resulting in the loss of billions of dollars worldwide each year.Statistics from the Internet Crime
Complaint Center show that there has been a significant rising in reported fraud in last decade.
Financial losses caused due to online fraud only in US, was reported $3.4 billion in 2011.
Fraud detection involves identifying scarce fraud activities among numerous legitimate transactions
as quickly as possible. Fraud detection methods are developing rapidlyin order to adapt with new
incoming fraudulent strategies across the world. But, development of new fraud detection
techniquesbecomes more difficult due to the severe limitation of the ideas exchange in fraud
detection. On the other hand, fraud detection is essentially a rare event problem, which has been
variously called outlier analysis, anomaly detection, exception mining, mining rare classes, mining
imbalanced data etc. The number of fraudulent transactions is usually a very low fraction of the total
transactions. Hence the task of detecting fraud transactions in an accurate and efficient manner is
fairly difficult and challengeable.Therefore, development of efficient methods which can distinguish
rarefraud activities from billions of legitimate transaction seems essential.
Although, credit card fraud detection has gained attention and extensive studyespecially in recent
years and there are lots of surveys about this kind of fraud such as [1], [2], [3],neither classify all
credit card fraud detection techniques with analysis of datasets and attributes. Therefore in this paper,
we attempt to collect and integrate a complete set of researches of literature and analyze them from
various aspects.
The main contributions of this work are highlighted as follows:
To the best of our knowledge, the absence of complete and detailed credit card fraud
detection survey is an important issue, which is addressed by analyzing the state of the art in
credit card fraud detection.
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The state of the art fraud detection techniques are described and classified from different
aspects of supervised/unsupervised and numerical/categorical data consistent.
In credit card fraud research each author has used its own dataset. There isno standard dataset
or benchmark to evaluate detection methods. We attemptto gather different
datasetsinvestigated by researchers, categorize them into real and synthetized groups and
extract the common attributes affects the quality of detection.
The rest of the paper is organized as follows: a general description of types of fraud is presented in
Section2.Challengesof credit card fraud detection are identified in Section3. Section4describes the
credit card fraud detection techniques, their advantages and disadvantages and classification of them.
In section 5 the dataset used by researchers and corresponding evaluation criteria are explained;
another classification upon data types is also drawn in this section. Finally open issues of credit card
fraud detection are presented in Section6.
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Statistical Classification of Credit Card Fraud Occurrence
Ukraine Ukraine
19%
other counry Indonesia
29% Yugoslavia
Malaysia
Indonesia
18% Turkey
United States Turkey United States
1% 9%
other counry
Yugoslavia
18%
Malaysia
6%
Imbalanced data:The credit card fraud detection data has imbalanced nature. It means
thatvery small percentages of all credit card transactions are fraudulent. This cause the
detection of fraud transactions very difficult and imprecise.
Different misclassification importance: in fraud detection task, different misclassification
errors have different importance.Misclassification of a normal transaction asfraud is not as
harmful as detecting a fraud transaction as normal. Because in the first case the mistake in
classification will be identified in further investigations.
Overlapping data: many transactions may be considered fraudulent, while actually they are
normal (false positive) and reversely, a fraudulent transaction may also seem to be legitimate
(false negative). Hence obtaining low rate of false positive and false negative is a key
challenge of fraud detection systems[4, 5, and 6].
Lack of adaptability: classification algorithms are usually faced with the problem of
detecting new types of normal or fraudulent patterns. The supervised and unsupervised fraud
detection systems are inefficient in detecting new patterns of normal and fraud behaviors,
respectively.
Fraud detection cost: The system should take into account both the cost of fraudulent
behavior that is detected and the cost of preventing it. For example, no revenue is obtained by
stopping a fraudulent transaction of a few dollars [5, 7].
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Lack of standard metrics: there is no standard evaluation criterion for assessing and
comparing the results of fraud detection systems.
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together with a simple function to compute output values. Neural networks come in many shapes and
architectures.The Neural network architecture, including the number of hidden layers, the number of
nodeswithin a specific hidden layer and their connectivity, most be specified by user based on the
complexity of the problem. ANNs can be configured by supervised, unsupervised or hybrid learning
methods.
4.1.1 Supervised techniques
In supervised learning, samples of both fraudulent and non-fraudulent records, associated with their
labels are used to create models. These techniques are often used in fraud analysis approach.One of
the most popular supervised neural networks is back propagation network (BPN). It minimizes the
objective function using a multi-stage dynamic optimization methodthat is a generalization of the
delta rule.The back propagation method is often useful for feed-forward network with no feedback.
The BPN algorithm is usually time-consuming and parameters like the number of hidden neurons
and learning rate of delta rules require extensive tuning and trainingto achieve the best performance
[10]. In the domain of fraud detection, supervised neural networks like back-propagation are known
as efficient tool that have numerous applications [11], [12], [13].
RaghavendraPatidar, et al. [14] used a dataset to train a three layers backpropagation neural network
in combination with genetic algorithms (GA)[15]forcredit card fraud detection. In this work, genetic
algorithms was responsible for making decision about the network architecture, dealing with the
network topology, number of hidden layers and number of nodes in each layer.
Also, Aleskerovet al. [16] developed a neural network based data mining system for credit card fraud
detection.The proposed system (CARDWATCH) had three layers autoassociativearchitectures.They
used a set of synthetized data for training and testing the system. The reportedresultsshow very
successfulfraud detection rates.
In [17], a P-RCE neural network was applied for credit card fraud detection.P-RCE is a type of
radial-basis function networks [18, 19]that usually applied for pattern recognition tasks.Krenkeret al.
proposed a model for real time fraud detection based on bidirectional neural networks [20]. They
used a large data set of cell phone transactions provided by a credit card company. It was claimed
that the system outperforms the rule based algorithms in terms of false positive rate.
Again in [21] a parallel granular neural network (GNN) is proposed to speed up data mining and
knowledge discoveryprocess for credit card fraud detection.GNNis a kind of fuzzy neural network
based on knowledge discovery (FNNKD).The underlying dataset was extracted from SQL server
database containing sample Visa Card transactions and then preprocessed for applying in fraud
detection. They obtained less average training errors in the presence of larger training dataset.
4.1.2Unsupervised techniques
The unsupervised techniques do not need the previous knowledge of fraudulent and
normalrecords.These methodsraise alarmfor those transactions that are most dissimilar from the
normalones.These techniques are often used in user behavior approach.ANNs can produce
acceptable result for enough large transaction dataset. They need a long training dataset. Self-
organizing map (SOM) is one of the most popular unsupervised neural networks learning which was
introduced by [22]. SOM provides a clustering method, which is appropriate for constructing and
analyzing customer profiles,in credit card fraud detection, as suggested in [23]. SOM operates in two
phase: training and mapping. In the former phase, the map is built and weights of the neurons are
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updated iteratively, based on input samples [24], in latter, test data is classified automatically into
normal and fraudulent classes through the procedure of mapping. As stated in [25], after training the
SOM, new unseen transactions are compared to normal and fraud clusters, if it is similar to all
normal records, it is classified as normal. New fraud transactions are also detected similarly.
One of the advantages of using unsupervised neural networks over similar techniques is that these
methods can learn from data stream. The more data passed to a SOM model, the more adaptation and
improvement on result is obtained. More specifically, the SOM adapts its model as time passes.
Therefore it can be used and updated online in banks or other financial corporations. As a result, the
fraudulent use of a card can be detected fast and effectively. However, neural networks has some
drawbacks and difficulties which are mainly related to specifying suitable architecture in one hand
and excessive training required for reaching to best performance in other hand.
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those that migrate to and develop within the thymus (the organ which is located behind the
breastbone) are named T-cells.
Artificial Immune System (AIS) is a recent sub field based on the biological metaphor of the
immune system [29]. The immune system can distinguish between self and non-self-cells, or more
specific, between harmful cells (called as pathogens) and other cells. The ability to recognize
differences in patterns and being all to detect and eliminate infections precisely has attracted the
engineer‟s intention in all fields.
Researchers have used the concepts of immunology in order to develop a set of algorithms, such as
negative selection algorithm [30], immune networks algorithm [31], clonal selection algorithm [32],
and the dendritic cells algorithm [33].
Brabazonet.al [35] proposed an AIS based model for online credit card fraud detection. Three AIS
algorithms were implemented and their performance was standardized against a logistic regression
model. Their three chosenalgorithms were the unmodified negative selectionAlgorithm, the modified
negative selection algorithm andthe Clonal selection algorithm.They proposed the Distance Value
Metric for calculating distance between records. This metric is based on the probability of data
occurrence in the training set. Where the detection rate increased, but the number of false alarms and
missed frauds remained.
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particular training dataset, and set the parameters depending on the same database, the results
indicate a tendency to improve. The experiment was carried out on Weka package.
Soltaniet.alin [8] proposed AIRS on credit card fraud detection. Since AIRS has a long training time,
authors have implemented the model in Cloud Computing environment to shorten this time. They
had used MapReduce API which works based on Hadoop distributed file system, and runs the
algorithm in parallel.
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an increase in co-stimulatory molecules production, which in turn ends up in removal from the tissue
and its migration to local lymph nodes.
1
Automatic Teller Machine (ATM)
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EkremDuman et al. developed a method for credit card fraud detection [48]. They defined a cost-
sensitive objective function that assigned different cost to different misclassification errors (e.g. false
positive, false negative). In this case, the goal of a classifier will be the minimization of overall cost
instead of the number of misclassified transactions. This is due the fact that the correct classification
of some transactions was more important than others. The utilized classifier in this work was a novel
combination of the genetic algorithms and the scatter search. For evaluating the proposed method, it
was applied to real data and showed promising result in comparison to literature. Analyzing the
influence of the features in detecting fraud indicated that statistics of the popular and unpopular
regions for a credit card holder is the most important feature. Authors excluded some type of features
such as the MCC and country statistics from their study that resulted in less generality for typical
fraud detection problem.
K.RamaKalyaniet al. [49] presented a model of credit card fraud detection based on the principles of
genetic algorithm. The goal of the approach was first developing a synthetizing algorithm for
generating test data and then to detect fraudulent transaction with the proposed algorithm..
Bentley et al. [50]developed a genetic programming based fuzzy system to extract rules for
classifying data tested on real home insurance claims and credit card transactions.
In [51], authors applied Genetic Programming to the prediction of the price in the stock market of
Japan. The objective of the work was to make decision in stock market about the best stocks as well
as the time and amount of stocks to sell or buy. The experimental results showed the superior
performance of GP over neural networks.
4.4 Hidden Markov Model (HMM)
A Hidden Markov Model is a double embedded stochastic process which is applied to model much
more complicated stochastic processes as compared to a traditional Markov model. The underlying
system is assumed to be a Markov process with unobserved states. In simpler Markov models like
Markov chains, states are definite transition probabilities are only unknown parameters. In contrast,
the states of a HMM are hidden, but state dependent outputs are visible.
In credit card fraud detection a HMM is trained for modeling the normal behavior encoded in user
profiles [52]. According to this model, a new incoming transaction will be classified to fraud if it is
not accepted by model with sufficiently high probability.Each user profile contains a set of
information about last 10 transactions of that user liketime; category and amount of for each
transaction [52, 53, and 54].HMM produces high false positive rate [55].V. Bhusari et al. [56]
utialized HMM for detecting credit card frauds with low false alarm. The proposed system was also
scalable for processing huge number of transactions.
HMM can also be embedded in online fraud detection systems which receive transaction details and
verify whether it is normal or fraudulent.If the system confirms the transaction to be malicious, an
alarm is raised and related bank rejects that transaction. The responding cardholder may then be
informed about possible card misuse.
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was extended for linearly inseparable data. A kernel function represents the dot product of
projections of two data points in a high dimensional space. It is a transform that disperses data by
mapping from the input space to a new space (feature space) in which the instances are more likely to
be linearly separable. Kernels, such as radial basis function (RBF), can be used to learn complex
input spaces. In classification tasks, given a set of training instances, marked with the label of the
associated class, the SVM training algorithm find a hyper-plane that can assign new incoming
instances into one of two classes. The class prediction of each new data point is based on which side
of the hyper-plane it falls on feature space.
SVM has been successfully applied to a broad range of applications such as [58] [59] [60]. In credit
card fraud detection, Ghosh and Reilly [61] developed a model using SVMs and admired neural
networks. In this research a three layer feed-forward RBF neural network applied for detecting
fraudulent credit card transactions through only two passes required to churn out a fraud score in
every two hours.
Tung-shou Chen et al. [62] proposed a binary support vector system (BSVS), in which support
vectors were selected by means of the genetic algorithms (GA). In proposed model self-organizing
map (SOM) was first applied to obtain a high true negative rate and BSVS was then used to better
train the data according their distribution.
In [63], a classification model based on decision trees and support vector machines (SVM) was
constructed respectively for detecting credit card fraud. The first comparative study among SVM
and decision tree methods in credit card fraud detection with a real data set was performed in this
paper. The results revealed that the decision tree classifiers such as CART outperform SVM in
solving the problem under investigation.
Rongchang Chen et al. [64] suggested a novel questionnaire-responder transaction (QRT) approach
with SVM for credit card fraud detection. The objective of this research was the usage of SVM as
well as other approaches such as Over-sampling and majority voting for investigating the prediction
accuracy of their method in fraud detection. The experimental results indicated that the QRT
approach has high degree of efficiency in terms of prediction accuracy.
Qibei Lu et al. [65] established a credit card fraud detection model based on Class Weighted SVM.
Employing Principal Component Analysis (PCA), they initially reduced data dimension to less
synthetic composite features due to the high dimensionality of data. Then according to imbalance
characteristics of data, an improved Imbalance Class Weighted SVM (ICW-SVM) was proposed.
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modeled by Bayesian network. The fraudulent behavior net is constructed fromexpert knowledge,
while the legitimate net is set up in respect to available data from non fraudulent users. During
operation, legitimatenet is adapted to a specific user based on emerging data.Classification of new
transactions were simplyconducted by inserting it to both networksand then specify the type of
behavior (legitimate/fraud) according to correspondingprobabilities. Applying Bayes rule, gives the
probability of fraud for new transactions [78]. Again, Ezawa and Nortondeveloped a four-stage
Bayesian network [79]. They claimed that lots of popular methods such as regression, K-nearest
neighbor and neural networks takes too long time to be applicable in their data.
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4.9 Inductive logic programming (ILP)
ILP by using a set of positive and negative examples uses first order predicate logic to define a
concept. This logic program is then used to classify new instances. Complex relationship among
components or attributes can be easily expressed,in this approach of classification.The effectiveness
of the system improves by domain knowledge which can be easily represented in an ILP system
[87].Muggleton et al.[88] proposed the model applying labeled data in fraud detection which using
relational learning approaches such as Inductive Logic Programming (ILP) and simple homophily-
based classifiers on relational databases. Perlich, et al. [89] also propose novel target-dependent
detection techniques for converting the relational learning problem into a conventional one.
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Table1. Advantages and disadvantages of fraud detection methods
Techniques Advantages Disadvantages
Ability to learn from the past/lack of need to be
Difficulty to confirm the structure/high
reprogrammed/ Ability to extract rules and predict
processing time for large neural networks
future activities based on the current situation/ High
and excessive training/ poor explanation
accuracy/ Portability/ high speed in detection/ the
capability/ difficult to setup and operate/high
ability to generate code to be used in real-time systems/
expense/ non numerical data need to be
Artificial Neural Network the easiness to be built and operated/ Effectiveness in
converted and normalized/Sensitivity to data
(ANN) dealing with noisy data, in predicting patterns, in
format.
solving complex problems, and in processing new
instances/Adaptability /Maintainability /knowledge
discovery and data miming
High capability in pattern recognition/powerful in
Learning and memory/Self-organization/ easy in
integration with other systems/dynamically changing Need high training time in NSA/ poor in
Artificial Immune System coverage/ self Identity/ multilayered/ has diversity/ handle missing data in ClonalG and NSA
(AIS) noise tolerance/ fault tolerance/ predator-prey
dynamics/ Inexpensive / no need to training phase in
DCA.
Works well with noisy data/easy to integrate with other
systems/ usually combined into other techniques to
increase the performance of those techniques and Requires extensive tool knowledge to set up
optimize their parameters/ easy in build and operate/In and operate and difficult to understand.
Genetic Algorithm
expensive/fast in detection/
Adaptability/Maintainability/knowledge discovery and
data miming
Fast in detection Highly expensive/ low accuracy/not scalable
Hidden Markov Model
to large size data sets
(HMM)
SVMs deliver a unique solution, since the optimality
problem is convex/by choosing an appropriate Poor in process largedataset/expensive/has
Support Vector Machines generalization grade, low speed of detection/ medium
(SVM) SVMs can be robust, even when the training sample has accuracy/lack of transparency of results
some bias.
In order to best comprise in fraud detection techniques we have been summarizes the advantages and
disadvantages of the mentioned techniques, which demonstrated in Table1. It is important to make a
point that primary version of this Table presented in [87].Finally,Fig. 2shows a complete
classification of fraud detection techniques.
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5-Data set and evaluation
The mentioned methods in any field definitely need a creditable data set to test upon it, and examine
efficiency in compare to other‟s related work. The lack of publicly available database has been a
limiting factor for the publications on financial fraud detection [36], particularly credit card
transactions. On the other hand, credit card is inherently private so, creating a proper data set for this
purpose is very difficult and there are no standard techniques to do this.
Also, there is no universal corpus for credit card. Altogether, some works build their own data set for
evaluation [48], [93]. However others use data sets which are gains by certain banks or financial
institutions in a specific time window [36], [32], [94], [59], [95], and [96].
Table2 will be present some credit card fraud detection research which had used real or synthetically
generated dataset.
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Table2. Details of data set used by researchers
Collection form Amount Used in Methods
Large Brazilian bank,
with registers within
Manoel Fernando,
time window between 41647 transactions/ 3.14%
Alonso Gadi et al. AIS
Jul/14/2004 through fraudulent transactions
(2008)
Sep/12/2004. (Real Data
set)
4 million transactions from
Financial institute in
462279 Anthony Brabazon et
Ireland (WebBiz) AIS
unique customers/ 5417 al. (2010)
(Real Data set)
fraudulent transactions
Hong kong bank, with 50 million credit card
registers within time transactions on about one C. Paasch (2007) /
window between January million (1,167,757 credit Siddhartha
ANN tuned by genetic algorithm/ Data mining techniques
2006 to January 2007 (13 cards) credit cards from a Bhattacharyya et al.
month) single country (2010)
(Real Data set)
Each bank supplied 500,000
records spanning one year
Chase Bank and First
with/ 20% fraud and 80% non
Union Bank Philip K. Chan (1999) Data mining techniques
fraud distribution for
(Real Data set)
Chase Bank/ 15% versus 85%
for First Union Bank
6000 credit card data with 64
predictor variables plus 1
Major US bank G. Kou, et al. (2005)
class variable, 84% of the data Multiple criteria linear programming
(Real Data set)
are normal accounts and 16%
are fraudulent accounts
Large Australian bank 640361 total transactions, Nicholas Wong et al.
AIS
(Real Data set) with 21746 credit cards (2012)
Vesta Corporation (Vesta
corporation is an
innovator and worldwide
206,541 transactions, 204,078
leader in virtual
transaction are normal and John Zhong Lei (2012) ANN
commerce with
2463 are fraudulent
headquarter in Portland,
Oregon, USA)
(Real Data set)
1,100,000 transactions/
Mellon Bank
authorized in two month SushmitoGhosh(1994) ANN
(Real Data set)
period
Synthetically generated 320000000 transactions/ 1050 M. Hamdiozcelik et al.
GA
data credit card/ 42 features (2010)
Synthetically generated 1000000 transactions/ 20 K.RamaKalyani et al.
GA
data features (2012)
Synthetically generated
10000 transactions Tao guo et al. (2008) Data mining techniques
data
The data are extracted into a
flat file from SQL server
Synthetically generated MubeenaSyeda et al.
database containing sample ANN
data (2002)
Visa Card transactions and
then preprocessed.
Primary attributes are attributes of credit card transactions which are available in the most datasets.
We present these mentioned attributes in Table3.
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Table3. Thecommon attributes in most datasets.
Row Attribute Name Description
1 Posting date Date when transaction was posted to the accounts
2 Merchant Category Code (MCC) a code devote to each goods
3 Transaction Date and Time Date and Time which the transaction was actually performed
4 Transaction status status of transaction success/fail
5 Transaction Place place of transaction (usually determine by IP Address)
6 Money Amount Amount of Money
7 Transaction Type Type of transaction payment/deposit/transfer and etc
8 customer identification The identification code which advocate to each customer
9 Scheme The type of credit card used, e.g. MasterCard, Visa, etc.
The volume of fraud in every dataset is different. This might be because of the different security
protocols used by different organizations and banks and so on. Whatever the reason is, this fact
causes different fraud characteristics on each dataset, which affects the performance of the fraud
detection system. Therefore considering the dataset‟s characteristics will help the system having
more precise results.
A proper data set is a data set which covers various fraud and several attributes of customer profile or
behavior. We believe that the contribution of attributes is a critical factor that should be considered.
Also, a proper data set should be able to reflect the real world of credit card.
Credit card transaction datasets usually divided in to two types: numerical and categorical attributes.
In statistics, categorical data is a statistical data type consisting of categorical variables, used for
observed data whose value is one of a fixed number of nominal categories, or for data that has been
converted into that form, for example as grouped data. However numeric data are numbers like age,
cost, etc.
In fraud detection applications customer‟s gender and name are the typical numerical attribute, and
categorical attributes are those like merchant category code, date of transaction, amount of
transaction and etc. Some of these categorical variables can, depending on the dataset, have hundreds
and thousands of categories.
Finally, Fig. 3shows a complete classification in two groups: numerical and categorical attributes
which is suitable for each algorithm.
Evaluation
There are a variety of measures for various algorithms and these measures have been developed to
evaluate very different things. So it should be criteria for evaluation of various proposedmethod.
False Positive (FP), False Negative (FN), True Positive (TP), and True Negative (TN) and the
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relation between them are quantities which usually adopted by credit card fraud detection researcher
to compare the accuracy of different approaches. The definitions of mentioned parameters are
presented below:
FP: the false positive rate indicates the portion of the non-fraudulent transactions wrongly
being classified as fraudulent transactions.
FN: the false negative rate indicates the portion of the fraudulent transactions wrongly
being classified as normal transactions.
TP: the true positive rate represents the portion of the fraudulent transactions correctly
being classified as fraudulent transactions.
TN: the true negative rate represents the portion of the normal transactions correctly being
classified as normal transactions.
Table 4shows the details of the most common formulas which are used by researchers for evaluation
of their proposed methods. As can be seen in this table some researchers had been used multiple
formulas in order to evaluated their proposed model.
Table4.Evaluation criteria for credit card fraud detection
Measure Formula Description Used in
Nicholas Wong et al. (2012) [97], Manoel
Fernando, et al. (2008)[36], soltani et al.
Accuracy is the percentage of
Accuracy [8],A. Brabazon et al. (2011) [35],
correctly classified instances.
(ACC)/Detection rate Siddhartha et al. (2008) [59],
TN + TP/TP + FP + FN + TN It is one the most widely used
P. Ravisankar et al. (2011) [99],
classification performance
AbhinavSrivastava et al. (2008) [52], John
metrics
Zhong et al. (2012) [26], Qibei Lu et al.
(2011) [65], AmlanKundu (2006) [98]
Precision is the number of Manoel Fernando, et al. (2008)[36],
TP/TP + FP classified positive or fraudulent Siddhartha et al. (2008) [50], John Zhong
Precision/Hit rate
instances that actually are et al. (2012) [26], Qibei Lu et al. (2011)
positive instances. [65], AmlanKundu (2006) [98]
TP (true positive) is the number
of correctly classified positive
or abnormal instances. TP rate Maes S. et al. (2002) [5], Siddhartha et al.
measures how well a classifier (2008) [59], Tao guo et al. (2008) [93], P.
True positive TP/TP + FN can recognize abnormal Ravisankar et al. (2011) [99],
rate/Sensitivity records. It is also called AbhinavSrivastava et al. (2008) [52], John
sensitivity measure. In the case Zhong et al. (2012) [26], Qibei Lu et al.
of credit card fraud detection, (2011) [65], AmlanKundu (2006) [98]
abnormal instances are
fraudulent transactions.
TN (true negative) is the
Siddhartha et al. (2008) [59], Philip K.
number of correctly classified
Chan (1999) [95], Tao guo et al. (2008)
TN/TN + FP negative or normal instances.
True negative rate [93], P. Ravisankar et al. (2011) [99],
TN rate measures how well a
/Specificity John Zhong et al. (2012) [26], Maes S. et
classifier can recognize normal
al. (2002) [5], Qibei Lu et al. (2011) [65],
records. It is also called
AmlanKundu (2006) [98]
specificity measure.
Nicholas Wong et al. (2012) [97], soltani
et al. [8], Maes S. et al. (2002) [5], Philip
False positive rate Ratio of credit card fraud K. Chan (1999) [95], AbhinavSrivastava
FP/FP+TN
(FPR) detected incorrectly et al. (2008) [52], John Zhong et al.
(2012) [26], Qibei Lu et al. (2011) [65],
AmlanKundu (2006) [98]
Manoel Fernando, et al. (2008)[36], Maes
Relative Operating
S. et al. (2002) [5], Tao guo et al. (2008)
True positive rate plotted against Characteristic curve, a
ROC [93],John Zhong et al. (2012) [26], Qibei
false positive rate comparison of TPR and FPR as
Lu et al. (2011) [65],AmlanKundu (2006)
the criterion changes
[98]
Manoel Fernando, et al. ,(2008)[36],
Cost Cost = 100 * FN + 10 * (FP +TP) soltani et al. [8], Philip K. Chan (1999)
[95], Qibei Lu et al. (2011) [65]
2 × (Precision ×Recall)/(Precision Weighted average of the
F1-measure Siddhartha et al. (2008) [59]
+Recall) precision and recall
19
The aim of all algorithms and techniques is to minimize FP and FN rate and maximize TP and TN
rate and with a good detection rate at the same time.
6. Open issues
While credit card fraud detection has gained wide-scale attention in the literature, there are yet some
issues (a number of significant open issues) that face researchers and have not been addressed
beforeadequately. Wehope this overview focuses the direction of future research to provide more
efficient and trustable fraud detection systems.These issues are as follow:
There is not any powerful algorithm known in credit card fraud literature that outperforms all
others.Eachtechnique hasits own advantages and disadvantages as stated in previous sections.
Combining these algorithms to support each other‟s benefits and cover their weaknesses would be of
great interest.
The limitation of good metrics in order to evaluate the results of fraud detection system is yet an
open issue. Nonexistence of such metrics causes incapability of researchers and practitioners in
comparing different approaches and determining priority of most efficient fraud detection
systems.
Lack of adaptive credit card fraud detection systems
Although lots of researches have been investigated credit card fraud detection field, there are
none or limited adaptive techniques which can learn data stream of transactions as they are
conducted. Such a system can update its internal model and mechanisms over a time without
need to be relearned offline. Therefore, it can add novel frauds (or normal behaviors)
immediately to model of learn fraud tricks and detect them afterward as soon as possible.
20
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