Analysis of Spending Pattern on Credit Card Fraud Detection

IOSR Journal of Computer Engineering (IOSR-JCE)
e-ISSN: 2278-0661,p-ISSN: 2278-8727, Volume 17, Issue 2, Ver. 1 (Mar – Apr. 2015), PP 61-64
www.iosrjournals.org
DOI: 10.9790/0661-17216164 www.iosrjournals.org 61 | Page
Analysis of Spending Pattern on Credit Card Fraud Detection
Capt. Dr. S Santhosh Baboo1
, N Preetha 2
1
Associate Professor, 2
Research Scholar
1,2
Department of Computer Science and Applications
1
D.G.Vaishnav College, Arumbakkam, Chennai,
2
PhD Research Scholar SCSVMV University, Enathur, Kancheepuram
Abstract: Credit card is one of the convenient way of payment in online shopping. In this on line
shopping, payment is made by giving information like card no, security code , expiration date of the
Credit card etc . To rectify the risk factors of using the credit card, every card holder’s spending method
is modeled by using HMM. By using this authenticated security check the information of transaction is
fraudulent or genuine. It is highly secured from unauthorized anomalous user using credit card and avoids
fraud usage of card through online transactions.
Keywords: HMM, FDS, TP, FP
I. Introduction
Now a days, credit card frauds have been rampantly increased, while making e-payments made
for the purchased goods or service provided on internet. These frauds are happening in two types of
purchase using the credit cards. 1) Physical card 2) Virtual card. In this first type of physical card
purchase, the purchaser has to provide the card to a merchant and make payment. In this type , the
credit card fraudulent is happened by stealing the credit card. If the card holder is unaware of this, the
credit card company has to face the financial loss and in the second type of virtual card purchase, the
card holder, has to provide the secret details of the card ( like security code, card no, expiration date
etc.) either thru internet or over phone . Without knowing the consequences, the genuine card holder is
providing the information to the fraudsters. The result is that they loss their money also. To detect this type
of criminal activity , the spending patterns of the card holder is analyzed .
To discover & prevent this type fraudulent activities, some intelligent & effective methods has
been provided by the data mining, machine learning & statistics areas. In these data mining, the cyber
credit card fraud has been detected by using artificial intelligence and algorithms techniques, which
analyses the usage of unusual patterns derived from the data given. In this method, it is detected whether
the transaction is legitimate or illegitimate.
II. Related Work
Ghosh and Reilly [1] have proposed credit card fraud detection with a neural network. They have built
detection system, which is trained on a large sample of labeled credit card account transactions. These
transactions contain example fraud cases due to lost cards, stolen cards, application fraud, counterfeit fraud,
mail-order fraud, and non received issue (NRI) fraud. Stolfo et al [2] suggest a credit card fraud detection
system (FDS) using meta-learning techniques to learn models of fraudulent credit card transactions. Meta
learning is a general strategy that provides a means for combining and integrating a number of separately built
classifiers or models. The same group has also worked on a cost-based model for fraud and intrusion detection
[3]. They use Java agents for Meta-learning (JAM), which is a distributed data mining system for credit card
fraud detection. A number of important performance metrics like TP-FP (True Positive – False Positive) spread
and accuracy have been defined by them.
Aleskerov et al. [4] present CARDWATCH, database mining system used for credit card fraud
detection. The system, based on a neural learning module, provides an interface to a variety of commercial
databases. Fan et al. [5] suggest the application of distributed data mining in credit card fraud detection. Braise
et al. Stolfo use an agent-based approach with distributed learning for detecting frauds in credit card
transactions. It is based on artificial intelligence and combines inductive learning algorithms and metal earning
methods for achieving higher accuracy.
Phua et al. [6] suggest the use of met classifier similar to in fraud detection problems. Recognizing this
problem, the switching-service provider decided to provide a capability to the issuing banks to flag in real-time
those transactions that appeared to be suspicious, and possibly fraudulent. In this way, at the bank’s option,
suspicious or fraudulent transactions were identified and rejected much earlier and faster than previously
possible.

Analysis of Spending Pattern on Credit card Fraud Detection
III. Proposed Work
This work focusing on an application which is used to detect the fraudulent credit card
activities on internet transaction. In this peculiar type, the pattern of current fraudulent usage of the
credit card has been analyzed with the previous transactions, by using the neural networks in algorithm
of data mining.
Figure.1 Proposed Architecture for investigation of credit card.
A. Credit card Fraud Detection using HMM.
To find out the fraudulent transactions, Hidden Markov model is used by detecting and analyzing
the spending profile of the credit card user. generally the profile is being divided into three types a)
lower profile b) middle profile c) higher profile . as every card holder has a different method of
spending profile, This can easily find out fraudulent one by keeping the in consistent record of the
usage of the card. Even though this cannot find out the number of purchased items & its categories,
This identifies the fraudulent transaction easily by analyzing the spending patterns of the card user. in
this the last twenty transactions of card holder can be easily studied & can identify which one is a
fraudulent one (i.e.) the amount, the time of transaction etc. It can be easily noted via the shadow based
replication engine.
The ultimate goal of this analysis is to give a note about the fraudulent transaction, to the
issuing bank and also to the merchant and to take appropriate action by the issuing bank. A critical
problem faced by the issuing banks is that of fraudulent transactions. This problem has, of course, exploded with
the high speed nature of electronic submission of credit and debit transactions. An ATM or POS transaction may
be fraudulent, for instance, if the credit card is stolen. Online purchases may be fraudulent if the credit card
number, expiration date, and CID number are copied from the card. This copying can easily be done, for
example, by a waiter taking a customer’s credit card to pay for a meal or when a phone order is placed and paid
for with a credit card. Identifying fraudulent transactions typically takes hours or days, and many such
transactions may slip through before a hold can be put on the card. Worse, because the information can be
quickly shared with thieves in multiple countries, they can rapidly attack via multiple avenues by submitting
many different types of transactions simultaneously, anticipating that the lesser (slower, etc) infrastructure that
some of them may take will allow at least some of them to get through successfully.
The fraud detection system flags a suspicious transaction with a severity flag and writes this
information to another log. Periodically, the log is sent to the bank’s authorization system, which takes
appropriate action on the card. A credit hold might be placed on the card so that all further transactions will be
rejected until the issue is researched or until the problem is resolved. Alternatively, upon the next attempted
transaction, the merchant might be informed to ask the customer to call the bank in order to authorize the
transaction.
This method is still generally the primary fraud detection procedure in use today. The problem with this
method is that it typically takes hours or even days to flag a card that is perhaps being used fraudulently. During
this time, the bank can experience significant losses as additional fraudulent transactions are made. In general,
the bank is responsible for such transactions and purchases made by the customers based on the price ranges that
can be determined dynamically by applying a clustering algorithm on the values of each cardholder’s
transactions, as shown in Table 1
Login
Information
Security
Check Information
Verification
Done (via SMS)
Card Entry
Transaction
Processed
Complete

B. Investigation made on Customer Transaction.
Cust_ID Frequency of Card Usage Average Amount
R0T 8K7 5 3000
W7X 2P8 3 45000
Y9T 8Q6 1 2000
Q6V 6Z2 5 1000
O1M 8P3 4 250
Y1A 4K1 2 6500
Table 1. Customer Monthly Transaction
Consider three price ranges namely, low (l), medium (m), and high (h)]. Our set of observation
symbols for example, let l= (0, 10000), m = (10000, 50000), and h= (50000 to credit card limit). If a cardholder
performs a transaction of 15000, then the corresponding observation symbol is m.
A credit cardholder makes different kinds of purchases of different amounts over a period of time. One
possibility is to consider the sequence of transaction amounts and look for deviations in them. However, the
sequence of types of purchase is more stable compared to the sequence of transaction amounts. The reason is
that, a cardholder makes purchases depending on his need for procuring different types of items over a period of
time. This, in turn, generates a sequence of transaction amounts. Each individual transaction amount usually
depends on the corresponding type of purchase. Hence, consider the transition in the type of purchase as state
transition in our model. The type of each purchase is linked to the line of business of the corresponding
merchant. This information about the merchant’s line of business is not known to the issuing bank running the
FDS. The authentication code will be send to the registered mobile number of the user, every time the user tries
to purchase. Thus, the type of purchase of the cardholder is hidden from the FDS. The set of all possible types
of purchase and, equivalently, the set of all possible lines of business of merchants forms the set of hidden states
of the HMM. A card transaction is captured by such devices as a point-of-sale (POS) terminal in a store, a
customer’s browser communicating with a website, or an ATM. The information concerning the request must be
rapidly gathered from the servicing network to which the devices are connected, sent to the issuing bank for
authorization/approval, and the response rapidly returned in order for the system to complete the transaction.
Highly Secured from unauthorized anomalous user using credit card and avoids fraud usage of card through
online transactions.
IV. Results And Discussion
The transaction-switching service provider realized that there was an opportunity to provide a unique
and important service to the issuing banks. If it could detect suspicious or fraudulent activity in real-time, it
could stop fraudulent transactions at the retail counter or at the ATM much sooner, or in some cases, even
before they were authorized. This service would be a value-added service that would distinguish it from other
ATM/POS switching networks. To implement this system, the switching provider installed multiple high-
performance servers that could quickly analyze transactions on-the-fly to determine if they were suspicious. The
selected servers were large Sun Solaris servers running Oracle databases. Each server comprised eight quad-core
CPUs. Each data centre is provided with its own fraud detection complex; comprising multiple Sun
Solaris/Oracle servers (the cards/accounts are assigned to particular Sun Solaris/Oracle servers at a site in order
to partition the work load). The fraud detection complex is easily scalable to handle additional load by adding
additional servers and reassigning the accounts/cards accordingly. Fraud detection will be checked on last 20
transactions and also calculate percentage of each spending profile (low, medium and high) based on total
number of transactions. In Table 2, list of all transactions are shown.
Cust_ID No. of Transaction Transaction Amount
R0T 8K7 5 15x103
W7X 2P8 3 135x103
Y9T 8Q6 1 2x103
Q6V 6Z2 5 5x103
O1M 8P3 4 1x103
Y1A 4K1 2 13x103
Table2. List of transactions.
The most recent transaction is placed at the first position. The pattern of spending profile of the card
holder is shown in (Figure 2) based on all transactions done. In this new approach, when a transaction is
received by a switch node, it is sent not only to the issuing bank for authorization, but it is also replicated in
real-time to a fraud detection server via a Shadow base replication engine. Shadow base engine routes the
transaction to the particular fraud detection server that is monitoring that card or account. Transaction
distribution by card number or account is accomplished via routing rules configured into the Shadow base
replication engine.

Figure 2: Spending pattern for customer transactions.
The action taken by the switch node for a suspicious transaction can be configured to correspond to the
desires of the issuing bank and the merchant. In still other situations, the issuing bank may want to allow the
transaction but leave a voice or e-mail message or sms for the customer notifying him of a potentially suspicious
transaction. It secures the transaction using OTP via sms and Detect the anomalous transaction when cardholder
lost the card. The percentage calculation of each spending pattern (low, medium and high) of the card holder
based on price distribution range as mentioned earlier is shown in Figure 3
Figure 3: Percentage of Spending Profile 1
It has been noticed that low spending profile has maximum percentage of 50, followed by medium
profile 33% and then 17% of high spending profile as per details of transactions in Table 2.
V. Conclusion And Future Work
The proposed solution for credit card fraud detection using HMM has different steps in credit card
transaction processing are represented as the under-lying a statistical process involving a number of random
variables depending on a variable parameter of an HMM and it secure the transaction using OTP via sms. It
Detect the anomalous transaction when cardholder lost the card. The ranges of transaction amount has been
used as the observation symbols, whereas the types of item have been considered to be states of the HMM. It
has also been explained how the HMM can detect whether an incoming transaction is fraudulent or not.
Experimental results show the performance and effectiveness of the spending profile of the cardholders. The
system is also scalable for handling large volumes of transactions. In Future thumb impression or face
recognition can also be implemented while using credit card in purchases.
References
[1]. Ghosh, S., and Reilly, D.L., 1994. Credit Card Fraud Detection with a Neural-Network, 27th Hawaii International l Conference on
Information Systems, vol. 3 (2003), pp. 621- 630.
[2]. Stolfo, S. J., Fan, D. W., Lee, W., Prodromidis, A., and Chan, P. K., 2000.Cost-Based Modeling for Fraud and Intrusion Detection:
Results from the JAM Project, Proceedings of DARPA Information Survivability Conference and Exposition, vol. 2 (2000), pp.
130-144
[3]. R. Brause, T. Langsdorf, and M. Hepp, “Neural Data Mining for CreditCard Fraud Detection,” roc. IEEE Int’l Conf. Tools with
ArtificialIntelligence, pp. 103-106, 1999.
[4]. Aleskerov, E., Freisleben, B., and Rao, B., 1997. CARDWATCH: ANeural Network Based Database Mining System for Credit
Card FraudDetection, Proceedings of IEEE/IAFE: Computational Intelligence forFinancial Eng. (1997), pp. 220-226.
[5]. W. Fan, A.L. Prodromidis, and S.J. Stolfo, “Distributed Data Mining inCredit Card Fraud Detection,” IEEE Intelligent Systems,
vol. 14, no. 6,pp. 67-74, 1999.
[6]. C. Phua, D. Alahakoon, and V. Lee, “Minority Report in FraudDetection: Classification of Skewed Data,” ACM SIGKDD
ExplorationsNewsletter, vol. 6, no. 1, pp. 50-59, 2004.

Analysis of Spending Pattern on Credit Card Fraud Detection

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Analysis of Spending Pattern on Credit Card Fraud Detection