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Credit Card Fraud Detection: An Exploration of Different Sampling Methods to Solve the Class Imbalance Problem
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Credit card frauds are easy and friendly targets. E-commerce and many other online sites have increased the online payment modes, increasing the risk for online frauds. Increase in fraud rates, researchers started using different machine learning methods to detect and analyse frauds in online transactions. The main aim of the paper is to design and develop a novel fraud detection method for Streaming Transaction Data, with an objective, to analyse the past transaction details of the customers and extract the behavioural patterns. Where cardholders are clustered into different groups based on their transaction amount. Then using sliding window strategy [1], to aggregate the transaction made by the cardholders from different groups so that the behavioural pattern of the groups can be extracted respectively. Later different classifiers [3],[5],[6],[8] are trained over the groups separately. And then the classifier with better rating score can be chosen to be one of the best methods to predict frauds. Thus, followed by a feedback mechanism to solve the problem of concept drift [1]. In this paper, we worked with European credit card fraud dataset.
Real-time fraud detection in credit card transactions is challenging due to the intrinsic properties of transaction data, namely data imbalance, noise, borderline entities and concept drift. The advent of mobile payment systems has further complicated the fraud detection process. This paper proposes a transaction window bagging (TWB) model, a parallel and incremental learning ensemble, as a solution to handle the issues in credit card transaction data. TWB model uses a parallelized bagging approach, incorporated with an incremental learning model, cost-sensitive base learner and a weighted voting-based combiner to effectively handle concept drift and data imbalance. Experiments were performed with Brazilian Bank data and University of California, San Diego (UCSD) data, and results were compared with state-of-the-art models. Comparisons on Brazilian Bank data indicates increased fraud detection levels between 18–38% and 1.3–2 times lower cost levels, which exhibits the enhanced performances of TWB. Comparisons on UCSD data indicate improved precision levels ranging between 8 and 25%, indicating the robustness of the TWB model. Future extensions of the proposed model will be on incorporating feature engineering to improve performances.
Frauds have no constant patterns. They always change their behavior; so, we need to use an unsupervised learning. Fraudsters learn about new technology that allows them to execute frauds through online transactions. Fraudsters assume the regular behavior of consumers, and fraud patterns change fast. So, fraud detection systems need to detect online transactions by using unsupervised learning, because some fraudsters commit frauds once through online mediums and then switch to other techniques. This paper aims to 1) focus on fraud cases that cannot be detected based on previous history or supervised learning, 2) create a model of deep Auto-encoder and restricted Boltzmann machine (RBM) that can reconstruct normal transactions to find anomalies from normal patterns. The proposed deep learning based on auto-encoder (AE) is an unsupervised learning algorithm that applies backpropagation by setting the inputs equal to the outputs. The RBM has two layers, the input layer (visible) and hidden layer. In this research, we use the Tensorflow library from Google to implement AE, RBM, and H2O by using deep learning. The results show the mean squared error, root mean squared error, and area under curve.
Despite more than two decades of continuous development learning from imbalanced data is still a focus of intense research. Starting as a problem of skewed distributions of binary tasks, this topic evolved way beyond this conception. With the expansion of machine learning and data mining, combined with the arrival of big data era, we have gained a deeper insight into the nature of imbalanced learning, while at the same time facing new emerging challenges. Data-level and algorithm-level methods are constantly being improved and hybrid approaches gain increasing popularity. Recent trends focus on analyzing not only the disproportion between classes, but also other difficulties embedded in the nature of data. New real-life problems motivate researchers to focus on computationally efficient, adaptive and real-time methods. This paper aims at discussing open issues and challenges that need to be addressed to further develop the field of imbalanced learning. Seven vital areas of research in this topic are identified, covering the full spectrum of learning from imbalanced data: classification, regression, clustering, data streams, big data analytics and applications, e.g., in social media and computer vision. This paper provides a discussion and suggestions concerning lines of future research for each of them.
An approach to the construction of classifiers from imbalanced datasets is
described. A dataset is imbalanced if the classification categories are not
approximately equally represented. Often real-world data sets are predominately
composed of "normal" examples with only a small percentage of "abnormal" or
"interesting" examples. It is also the case that the cost of misclassifying an
abnormal (interesting) example as a normal example is often much higher than
the cost of the reverse error. Under-sampling of the majority (normal) class
has been proposed as a good means of increasing the sensitivity of a classifier
to the minority class. This paper shows that a combination of our method of
over-sampling the minority (abnormal) class and under-sampling the majority
(normal) class can achieve better classifier performance (in ROC space) than
only under-sampling the majority class. This paper also shows that a
combination of our method of over-sampling the minority class and
under-sampling the majority class can achieve better classifier performance (in
ROC space) than varying the loss ratios in Ripper or class priors in Naive
Bayes. Our method of over-sampling the minority class involves creating
synthetic minority class examples. Experiments are performed using C4.5, Ripper
and a Naive Bayes classifier. The method is evaluated using the area under the
Receiver Operating Characteristic curve (AUC) and the ROC convex hull strategy.
Credit cards have become the part of human life these days. It facilitates users in various sectors. Intruders try to steal credit card information in many ways. Hence, security of sensitive information of credit cards is a major concern. We can apply different machine learning techniques to detect such frauds or anomalies. On basis of our survey, we found two outperforming classifiers of machine learning viz., Logistic Regression (LR) and Naïve Bayes (NB). This paper provides a method of fraud detection in credit card system using Random Forest (RF) classifier. The work is compared with the existing classifiers: LR and NB. Their performance is evaluated on various metrics viz., Accuracy, Precision, Recall, F1 Score and Specificity on some datasets of credit card system. It is observed that Random Forest is outperforming others. Random Forest gives 99.95% accuracy while accuracy of LR and NB is 91.16% and 89.35% respectively.
Due to the surge of interest in online retailing, the use of credit cards has been rapidly expanded in recent years. Stealing the card details to perform online transactions, which is called fraud, has also seen more frequently. Preventive solutions and instant fraud detection methods are widely studied due to critical financial losses in many industries. In this work, a Gradient Boosting Tree (GBT) model for the real-time detection of credit card frauds on the streaming Card-Not-Present (CNP) transactions is investigated with the use of different attributes of card transactions. Numerical, hand-crafted numerical, categorical and textual attributes are combined to form a feature vector to be used as a training instance. One of the contributions of this work is to employ transaction aggregation for the categorical values and inclusion of vectors from a character level word embedding model which is trained on the merchant names of the transactions. The other contribution is introducing a new strategy for training dataset generation employing the sliding window approach in a given time frame to adapt to the changes on the trends of fraudulent transactions. In the experiments, the feature engineering strategy and the automated training set generation methodology are evaluated on the real credit card transactions.
From one year to another, more and more vast amounts of data is being created in different fields of application. Great deal of those sources require real-time processing and analyzing, which leads to increased interest in streaming data classification field of machine learning. It is not rare, that many of those applications deal with somehow skewed or imbalanced data. In this paper, we analyze usage of smote oversampling algorithm variations in learning patterns from imbalanced data streams using different incremental learning ensemble algorithms.
Credit card fraudulent happens through the account holders card number, card details and personal information. E-commerce payment system is providing the payment for online transaction. The model is used to identify whether a new transaction is fraudulent or not. Aim is to detect 100% of the fraudulent transactions while minimizing the incorrect fraud classifications. A standard scalar model is initially trained with the normal behavior of a card holder. If an incoming credit card transaction is not accepted by the trained standard scalar model with sufficiently high probability, it is considered to be fraudulent, which defines a plot of test perception as the y coordinate versus its 1-specificity or false positive rate (FPR) as the x coordinate, is an effective method of estimate the quality or performance of diagnostic tests. The significance of the application technique reviewed in the minimization of credit card fraud. Still some issues when genuine credit card customers are misclassified as fraudulent. SMOTE is a statistical technique for increasing the number of cases in your dataset in a balanced way. Random forest builds multiple decision trees and integrate them together to get stable prediction and accuracy of about 98.6%.
The rapid growth of mobile Internet technologies has induced a dramatic increase in mobile payments as well as concomitant mobile transaction fraud. As the first step of mobile transactions, bankcard enrollment on mobile devices has become the primary target of fraud attempts. Although no immediate financial loss is incurred after a fraud attempt, subsequent fraudulent transactions can be quickly executed and could easily deceive the fraud detection systems if the fraud attempt succeeds at the bankcard enrollment step. In recent years, financial institutions and service providers have implemented rule-based expert systems and adopted short message service (SMS) user authentication to address this problem. However, the above solution is inadequate to face the challenges of data loss and social engineering. In this study, we introduce several traditional machine learning algorithms and finally choose the improved gradient boosting decision tree (GBDT) algorithm software library for use in a real system, namely, XGBoost. We further expand multiple features based on analysis of the enrollment behavior and plan to add historical transactions in future studies. Subsequently, we use a real card enrollment dataset covering the year 2017, provided by a worldwide payment processor. The results and framework are adopted and absorbed into a new design for a mobile payment fraud detection system within the Chinese payment processor.
Many real-world data-mining applications involve obtaining predictive models using datasets with strongly imbalanced distributions of the target variable. Frequently, the least-common values of this target variable are associated with events that are highly relevant for end users (e.g., fraud detection, unusual returns on stock markets, anticipation of catastrophes, etc.). Moreover, the events may have different costs and benefits, which, when associated with the rarity of some of them on the available training data, creates serious problems to predictive modeling techniques. This article presents a survey of existing techniques for handling these important applications of predictive analytics. Although most of the existing work addresses classification tasks (nominal target variables), we also describe methods designed to handle similar problems within regression tasks (numeric target variables). In this survey, we discuss the main challenges raised by imbalanced domains, propose a definition of the problem, describe the main approaches to these tasks, propose a taxonomy of the methods, summarize the conclusions of existing comparative studies as well as some theoretical analyses of some methods, and refer to some related problems within predictive modeling.
Class imbalance problem is quite pervasive in our nowadays human practice. This problem basically refers to the skewness in the data underlying distribution which, in turn, imposes many difficulties on typical machine learning algorithms. To deal with the emerging issues arising from multi-class skewed distributions, existing efforts are mainly divided into two categories: model-oriented solutions and data-oriented techniques. Focusing on the latter, this paper presents a new over-sampling technique which is inspired by Mahalanobis distance. The presented over-sampling technique, called MDO (Mahalanobis Distance-based Over-sampling technique), generates synthetic samples which have the same Mahalanobis distance from the considered class mean as other minority class examples. By preserving the covariance structure of the minority class instances and intelligently generating synthetic samples along the probability contours, new minority class instances are modelled better for learning algorithms. Moreover, MDO can reduce the risk of overlapping between different class regions which are considered as a serious challenge in multi-class problems. Our theoretical analyses and empirical observations across wide spectrum multi-class imbalanced benchmarks indicate that MDO is the method of choice by offering statistical superior MAUC and precision compared to the popular over-sampling techniques.
The most important factor of classification for improving classification accuracy is the training data. However, the data
in real-world applications often are imbalanced class distribution, that is, most of the data are in majority class and little
data are in minority class. In this case, if all the data are used to be the training data, the classifier tends to predict
that most of the incoming data belong to the majority class. Hence, it is important to select the suitable training data for
classification in the imbalanced class distribution problem. In this paper, we propose cluster-based under-sampling approaches
for selecting the representative data as training data to improve the classification accuracy for minority class in the imbalanced
class distribution problem. The experimental results show that our cluster-based under-sampling approaches outperform the
other under-sampling techniques in the previous studies.
Along with increasing credit cards and growing trade volume in China, credit card fraud rises sharply. How to enhance the detection and prevention of credit card fraud becomes the focus of risk control of banks. This paper proposes a credit card fraud detection model using outlier detection based on distance sum according to the infrequency and unconventionality of fraud in credit card transaction data, applying outlier mining into credit card fraud detection. Experiments show that this model is feasible and accurate in detecting credit card fraud.
Using data from a credit card issuer, a neural network based fraud detection system was trained on a large sample of labelled credit card account transactions and tested on a holdout data set that consisted of all account activity over a subsequent two-month period of time. The neural network was trained on examples of fraud due to lost cards, stolen cards, application fraud, counterfeit fraud, mail-order fraud and NRI (non-received issue) fraud. The network detected significantly more fraud accounts (an order of magnitude more) with significantly fewer false positives (reduced by a factor of 20) over rule-based fraud detection procedures. We discuss the performance of the network on this data set in terms of detection accuracy and earliness of fraud detection. The system has been installed on an IBM 3090 at Mellon Bank and is currently in use for fraud detection on that bank's credit card portfolio.< >
Combined oversampling and undersampling method based on slow-start algorithm for imbalanced network traffic
- S Park
- H Park