Credit Card Fraud

Index
Abstract
Introduction
LITERATURE REVIEW
Objective of the Project
Project
The Service Providers Switching System
Existing System
Other issue
Hardware and software requirement

Abstract

The most accepted payment mode is credit card for both online and
offline in todays world, it provides cashless shopping at every shop
in all countries. It will be the most convenient way to do online
shopping, paying bills etc. Hence, risks of fraud transaction using
credit card has also been increasing. In the existing credit card fraud
detection business processing system, fraudulent transaction will be
detected after transaction is done. It is difficult to find out
fraudulent and regarding loses will be barred by issuing authorities.
Hidden Markov Model is the statistical tools for engineer and
scientists to solve various problems. In this paper, it is shown that
credit card fraud can be detected using Hidden Markov Model
during transactions. Hidden Markov Model helps to obtain a high
fraud coverage combined with a low false alarm rate.

Introduction
In day to day life credit cards are used for purchasing goods and services with the help
of virtual card for online transaction or physical card for offline transaction. In a
physical-card based purchase, the cardholder presents his card physically to a merchant
for making a payment. To carry out fraudulent transactions in this kind of purchase, an
attacker has to steal the credit card. If the cardholder does not realize the loss of card, it
can lead to a substantial financial loss to the credit card company. In online payment
mode, attackers need only little information for doing fraudulent transaction (secure
code, card number, expiration date etc.).

In this purchase method, mainly transactions will be done through Internet or
telephone. To commit fraud in these types of purchases, a fraudster simply needs to
know the card details.

Most of the time, the genuine cardholder is not aware that someone else has seen or
stolen his card information. The only way to detect this kind of fraud is to analyze the
spending patterns on every card and to figure out any inconsistency with respect to the
usual spending patterns. Fraud detection based on the analysis of existing purchase
data of cardholder is a promising way to reduce the rate of successful credit card frauds.
Since humans tend to exhibit specific behaviouristic profiles, every cardholder can be
represented by a set of patterns containing information about the typical purchase
category, the time since the last purchase, the amount of money spent, etc. Deviation
from such patterns is a potential threat to the system.

LITERATURE REVIEW

Credit card fraud detection has drawn a lot of research interest and a number of
techniques, with special emphasis on neural networks, data mining and distributed
data mining have been suggested. Ghosh and Reilly have proposed credit card fraud
detection with a neural network. They have built a detection system, which is
trained on a large sample of labelled credit card account transactions.
Stolfo et al. [3] suggest a credit card fraud detection system (FDS) using
metalearning techniques to learn models of fraudulent credit card transactions.
Metalearning is a general strategy that provides a means for combining and
integrating a number of separately built classifiers or models.
Fan et al. suggest the application of distributed data mining in credit card fraud
detection. Brause et al. have developed an approach that involves advanced data
mining techniques and neural network algorithms to obtain high fraud coverage.
Chiu and Tsai have proposed Web services and data mining techniques to establish
a collaborative scheme for fraud detection in the banking industry. With this
scheme, participating banks share knowledge about the fraud patterns in a
heterogeneous and distributed environment.
Phua et al. suggest the use of metaclassifier similar to in fraud detection
problems. They consider nave Bayesian, and Back Propagation neural networks as
the base classifiers. A metaclassifier is used to determine which classifier should
be considered based on skewness of data. Although they do not directly use credit
card fraud detection as the target application, their approach is quite generic.

Objective of the Project

The objective of this application is as follows:
Creating an application to detect fraud Credit
Cards.
Implementing Hidden Markov model.
Creating database containing all relevant
information of Customer.
Providing security to the customers at the time of
transaction.
Implementing firewall to restrict entry outside
the Network.

Contt..
Features and Functionality
This project is based upon Hidden Markov Model.
HMMs can be applied to the gesture-recognition
problem.
It is primarily concerned with empirically picking the
HMM parameters from some sample data.
Detects fraud to analyze the spending patterns on
every card and to figure out any inconsistency with
respect to the usual spending patterns.
Fraud detection system is based on the analysis of
existing purchase data of cardholder

Project
Project Applications:
The different areas where we can use this application
are :
It can be used on the server of any organization
providing financial transactions.
It can also be used in banks and modifications can be
easily done according to requirements.

Project Risks:
Proper network security is necessary.
Frauds can be done using SQL injection.

The Service Providers Switching
System

Existing System

Issuing banks typically provide their own fraud detection. A typical fraud detection
process proceeds as follows.

The important information associated with a transaction is written to a transaction log
by the banks authorization system. This information includes the card identification,
the transaction amount, the time of the transaction, and the location of the
transaction. The log is sent to a separate fraud detection system every few hours. The
fraud detection system is optimized to perform complex analyses on the transaction log
to look for fraudulent activity against any particular card or account. In this way, a series
of transactions made over time against a card or an account can be analyzed.

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 banks 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.


Other issue

Fraud Detection in Real-Time:

Data Mining for Credit/Debit card Fraud
Detection:

Hidden Markov Model

Credit Card Fraud Detection

Hardware and Software Requirement
HARDWARE
At least 166 MHz Pentium Processor or Intel compatible processor.
At least 16 MB RAM.
14.4 kbps or higher modem.
A video graphics card.
At least 3 MB free hard disk space.
Microsoft Internet Explorer 4.0 or higher.

SOFTWARE
Visual Studio 2008(.Net framework)
MS SQL Server 2005

Operational Requirements
Windows OS
Google or Yahoo search engine API
Internet Connectivity as the tool is based on real-time search engines
Thank you