2019 2nd International Conference on Issues and Challenges in Intelligent Computing Techniques (ICICT)
Fraud Detection During Money Transaction and
Prevention
Surbhi1, Dr. Sanjeev Kumar2
1,2
KIET Groups of Institutions, Ghaziabad, India
Abstract—With the increased use of digital money, online
financial frauds are observed to be one of the most common cyber
crimes. Credit/Debit card frauds are among the easy cyber crimes
targeted by fraudster. In this paper all possible online frauds of
present era and likely to be occur in future have been discussed.
Ignorance, greed, availability of technical tools, malafide
intentions, online and offline security breaches are some reasons
behind these financial cyber crimes. Most of the fraud detections
techniques have been studied with their merits and constraints.
Proposal of two techniques to detect and understand dynamics of
evolution of fraudsters with improvement of security systems and
another technique of analysis of time series data of random
variables describing characteristics of online frauds have been
suggested to use in future scope.
Keywords—online financial fraud, detection and prevention,
time series data.
I. INTRODUCTION
Fraud is illegal action performed for a specific motive like to
gain money, goods, services and sometime fame etc. fraud is
present in our society from ancient time. But the ways of doing
frauds is also enhanced with the time. Here are some definitions
of fraud by different scholars: Fraud is intentional deception to
secure unfair or unlawful gain, or to deprive a victim of a legal
right. Fraud may violate civil laws, criminal laws. There may be
chances of no loss of money, property or legal rights but still
matter of another civil or criminal wrong. Fraud is a deliberately
deceitful activity in order to gain an advantage or generate a
profit. In corporate fraud is cheating in business or financial
markets. A person or thing intended to deceive others, typically
by unjustifiable claiming or being credited with
accomplishments or qualities. Fraud is a crime getting money or
financial benefits by lying or by using tricks.Fraud is something
or someone that deceives people in a way that is illegal or
dishonest.
Types of frauds
There are various types of frauds that can be seen or read in
newspaper. Following are some of them:
1. Cheque frauds : when someone give cheque to pay money to
other person by knowing that he has not enough money in his
account to pay it or when someone steals other individual’s
cheque. Example: A recent report of 30 July 2019 states that two
startup fraudsters cheque mate Lucknow businessmen. 2 persons
brought laptops for wholesale and did payment by cheque of
posterior date which later on declared bounced by the bank.
2. Internet sales: Selling fake items online and take payment
with intension of not giving delivery. Example: A report of 29
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August, 2019 states that a doctor was fooled to pay 2.62 lakh
rupees while shopping online. He purchased a laundry bag of
worth rupees 399. He got a call that he has got the offer in which
a laptop is given to him as a gift. Later on he got message to pay
GST Rs 5,580 along with some information about him.
3. Insurance fraud: False insurance claims for automobile
damages, health care expenses and homeowners or rentals
insurance etc .Example: A report of 9 july 2019 states that 10
men arrested for insurance fraud worth crores. This group
includes a doctor, a lawyer and which targets the ill patients.
They first get them insurance cover. Doctor do long treatment
and make money. In case a person died during treatment then
certified his death as unnatural so that they can claim for
insurance money.
4. Work from home scams: Criminal’s offers work from home
oppurnity to the victims and promise the people to payoff big
amount. Fraudsters offer simple task to the victims and trap them
in their scheme by offering different courses so that victims can
earn more money by joining such courses and ask victims for
their bank details.
5. Credit card or debit card frauds: unauthorized use of
someone’s credit card or debit card or credit or debit card
information to buy something. Example: In recent news of 9
august, 2019 the JCP Atul katiyar sitting at police HQ, Delhi
looses Rs 28,000 to credit card fraud. He got a fake bank
message that he had got some rewards point on his credit card.
To redeem them he has to fill some information. He did so and
loses his money.
We mainly focus on the credit card frauds.“A 2016
Iovation/Aite Group study on EMV’s projected impact on
financial fraud reports that credit card fraud losses may climb to
as much as $10 billion in the united states alone by
2020”.According to 2016 data released by ACI worldwide &
financial industry consultant Aite Group, nearly 1 in 3
consumers globally have been victimized by credit card fraud in
past 5 years.
There are various shapes and forms of credit card frauds.
Some frauds are done to get money or some are for purchasing
goods for free. Credit card fraud is not just single action but have
different forms. Below is description of different forms of credit
card frauds:1.Application fraud: This type of fraud occurs when
other people apply for credit or new credit card in your name.
Criminals first steal your information like supporting documents
by false calls. 2.Electronic or manual credit card imprints: This
happens when someone skims the information that is placed on
magnetic strip and then decodes this information to do fraud
transaction.3. Card not present fraud (CNP): This type of
 fraud is done when criminals don’t have your card but have
some details like account no, expiry date etc.4.Lost and stolen
fraud cards: In this transactions are made online by using your
missing or stolen cards details. 5.Card id theft: when someone
gets your credit card details and this information can be used for
getting new credit card. Example: A report of 30 July, 2019
states that a Mumbai senior citizen looses 2.5 Lakh rupees by
filling online form. She got a fake call from fraudsters that she
has to update her details by filling up online form. If she doesn’t
do so her card will be blocked. She did as it and loses her
money.6.Mail receipt card fraud: It is also called never received
issues or intercepts fraud. When you are expecting a new card
or replacement one but criminal intercept that card.7.Doctored
cards: It is a card in which a strong magnet has erased its metallic
stripe. Criminals do this to make changes so that they match with
it valid cards. 8.Fake cards: criminals make fake credit card
although it requires a lot of skills. 9. Assumed identity: In this
type of fraud, criminals use assumed information like temporary
address with false name. Although now a day’s banks verify this
by account reference to check genuinity of the card
holder.10.Account Takeover: This type of fraud is most
commonly done by online. Criminals first get your information
like supporting documents, card details and then contact to your
credit card company to get new card and send it to changed or
modified fake address.
II. LITERATURE SURVEY
To avoid any fraud, there are two stages first one is fraud
prevention and second one is fraud detection. In fraud
prevention we try to restrict ourselves from being victims of any
fraud by using firewall or any encryption and decryption
method. But in fraud detection if we found that there is a fraud
then there are some methods which we can use to get overcome
from them. Mohd Aizaini Maarof(2016) discussed issues &
challenges that impact the performance of fraud detection
system. He took 5 areas of frauds i.e. credit card,
telecommunication, health insurance, automobile insurance and
online auction. He also predict the techniques that are recently
used in detecting the frauds i.e. SVM, ANN, Decision tree,
logistic regression [1].There are various issues that faced by the
investigators while detecting credit card fraud. Yann-Ael Le
Borgne(2014) focused on 3 issues i.e. unbalancedness, non-
stationarity, and assessment. He suggested doing ranking of
transactions by their probability of fraud rather than classifying
transaction correctly, as a solution of the problem unbalanced.
He urged for non stationary problem to create new model every
time that in turn create a new chunk. For assessment problem,
he predicted 3 approaches i.e. static, update & forgetting. In
these 3 approaches he found best strategy is forgetting approach
along with easyEnsembler and daily update. [2]Masoumeh
Zareapoor(2015) compared 4 data mining approaches for credit
card fraud detection i.e. Naïve bayes classifier, Support vector
machine, K nearest neighbor algorithm and bagging ensemble
classifier based on decision tree. He found that bagging
ensemble classifier based on decision tree work best among all
because of its independency of attribute values and its ability to
handle the class imbalance problem. [3] Adrian
Banarescu(2015) suggested that by doing data analysis we can
detect the fraud and able to prevent from it. He predicts two
approaches for data analysis i.e. strategic analysis and
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operational analysis. In strategic analysis, exploration of data is
done on its operating environment to make strategy while in
operating analysis of data is exploring about current information
to be processed. In the end he suggests that by monitoring the
system we can avoid fraud to enter.[4]Varsha Nemade(2018)
focused on the predictive modeling for credit card fraud
detection using data analytics. He used 3 approaches after data
analysis i.e. logistic regression, random forest and random forest
decision tree. He found that random forest work best among all.
But there is a problem of overfitting in memory as data
increases. [5] Devi meenakshi(2019) applied random forest for
detecting credit card frauds. She found that random forest also
suffer from imbalance problem of data. [6]Alejandro correa
Bahnsen(2013) predicted a cost sensitive method based on
Bayes minimum risk. He first optimize the threshold and then
applied Bayes minimum risk classifier to predict the cost
sensitivity and then he compared it with state of art algorithms
which gave result by improving 23% cost. [7]Sanjeev jha(2011)
proposed a comparative study for data mining for credit card
fraud. He compared 2 approaches of data mining i.e. support
vector machine and random forest with logistic regression. He
found that random forest work well. [8] Joseph pun (2012)
suggested improving credit card fraud detection using Meta
classification strategy. He did analysis of different paired
approaches i.e. Naïve Bayes, Decision tree, k-nearest neighbor,
SVM for detecting fraud. The best out of them are selected by
the Meta classifier to detect the fraud. This Meta classifier is
then combined with ranking method. Its prediction is then
compared with neural network prediction. [9]C.Withrow (2009)
applied transaction aggregation as a strategy for credit card fraud
detection. He predicted that transaction aggregation sometime
can be useful but not all the time. He found that random forest
work well as compare to SVM, KNN, and logistic regression for
classification. [10]Fabrizio carcillo (2017) predict a Scalable
real time fraud finder (SCARFF) which works with tools spark
in detecting credit card fraud detection. [11]Heta naik (2019)
compared the different machine learning algorithms i.e. k-
nearest neighbor, Naïve bayes, Random tree, Logistic
regression, outlier, Adaboost and J48 for detecting credit card
frauds. He found that Adaboost algorithm perform well as
compared to other algorithms.[12]Gowtham sethupathi(2019)
applied random forest algorithm to detect the dynamic malware.
He classified the benign apps from malicious apps by studying
the android apps and its pattern. [13]Krishna kumar tripathi
(2012) did a survey about the various algorithms used in
detecting credit card frauds. He discussed various approaches
like neural network, Bayesian network, Genetic algorithm, k-
nearest neighbor, SVM, Decision tree, meta learning strategy,
artificial immune system. [14]Venkata ratnam ganji (2012)
predict the concept of credit card fraud detection by using a data
stream outlier detection algorithm which is based on reverse k-
nearest neighbors (SODRNN). [15]
III. TECHNIQUES : OVERVIEW
Let’s take a Brief overview of techniques which we have studied
from the above stated.
A. Random forest: RF creates a set of models and combines its
prediction to predict the label of class for any data at any point.
It creates each tree on separate bootstrap sample and randomly
selects the attributes from the subset of data as node. Error rate
 depends upon correlation between trees and strength of each
tree in the ensemble. In [7] RF performs better when threshold
optimization is applied. It result in increase in recall which
means number of fraud detected but precision decreases but F1
score remain constant. On adjusting estimated probability
Bayes Minimum is applied on RF it give better result as
compare to other algorithms. In [2] RF performs better i.e.
accuracy obtained is improved by increasing training size.
B. Support vector machine (SVM): SVM is a linear classifier
that do non linear mapping of data points in input space of
problem in high dimensional feature space. It doesn’t work in
straight line that helps it in capturing the much more complex
relationship between data points. It performs well with
unbalanced data without adding any computational complexity.
In [8] SVM uses kernel representation and margin optimization
to perform classification. Kernel representation is done through
the kernel function that is the dot product of two data points in
high dimensional space that help in mapping of data points in
learning the classification. Whereas margin optimization is done
through the classification function that is a hyper plane used to
overfit the training data by calculating margin separation
between two classes. There are various kernel function
depending upon the problem classification i.e. linear function,
Gaussian radial basis function, polynomial function.
C. Naïve Bayes classifier: NVC is a supervised machine
algorithm used to predict the class of future instance on the basis
of training dataset with known target classes. It is used for
classification problem mainly text classification. It is called
naïve because it makes assumption that the occurrence of each
feature is independent to other feature.
P(A│B)=(P(A│B)P(A))/P(B)
Where P (A|B) =occurrence of event A given the event B
is true, P(B|A)=probability of occurrence of event B given event
A is true. It works on Bayesian method of probability to
calculate the probability of correct class which is particular
attributes in the dataset. It is as follows: Prior probability of X:
Number of X instances/total number of instances. Likelihood of
W given X: Number of X in vicity of W/total number of X. Final
classification is produced by combining of prior probability and
likelihood to posterior probability.
Posterior=(likelihood)×prior/(evidence prior probability)
D. Decision tree: it is a supervised machine learning algorithm.
It is widely used tool for classification and regression. It is kind
of flow chart in which each leaf node contains a class label, each
internal node have a test(IF-Else) on attributes whereas branch
holds the outcome of the test. There is no need of prior
knowledge to work in any domain and can handle continuous
and categorical variables. In [5] decision tree uses ID3 for
constructing tree by considering the entropy of dataset i.e.
amount of uncertainty in n. Split point of tree is also depend on
entropy. It can be calculated as follows:
H(p1,p2,…pi)=∑_(i=1)^s(pilog(i/pi) )
Where p1, p2,….ps are probability of attribute of dataset
Now gain function is calculated by subtracting entropy of entire
dataset to entropy of splitting attribute. The highest value of
entropy will be selected as root of tree.
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E. K Nearest neighbor: It is simple algorithms that stores
all available cases and classify new cases on the basis of
similarity measure i.e. distance function. It is based on
instances. Every time when a new instance come it compare
new one with existing one by using distance metric and
assign the class to the nearest existing instance. In [3] author
calculates the nearest point to new incoming transaction and
if nearest point is fraudulent then this transaction is fraud.
Generally value of k is small. For calculating distance value
between two points there are different ways. Euclidean
distance calculation is used for continuous attributes while
for categorical attributes, simple matching coefficient is
used.
IV. CONCLUSION
It is prominently well established fact that fraudsters are
always available in society. Online fraud cases of financial
transactions are big challenges since with the evolution of
security mechanism fraudsters are also evolved and using new
techniques. Lack of awareness, greed and fear are the main
parameters behind online cheating of customers so there is
strong demand of smart mechanism to deal with such cases.
Proposal of smart software which can track suspicious textual
messages and audio conversations along with detection of
malafide software agents, one proposal of development of
intelligent software agent is also very important which may be
self-evolvable and can track source of fraudulent and nullify the
effects of these and it may be helpful to nab fraudsters too.
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