Tribhuvan University

Insitute of Science And Techonology

BScCSIT Project Proposal

Project Title:
Credit Card Fraud Detection Using Neural Network

Presented By: Supervisor:

Naresh Kumar Sharma Bikash Balami
Krishna Bahadur Shahi
Jivan Budha Magar
Dipesh BK

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 CERTIFICATE OF APPROVAL

The undersigned certify that they have read and recommended to the Institute of Science And
Technology for acceptance, a project proposal entitled “Credit Card Fraud Detection Using
Neural Network” submitted by Naresh Kumar Sharma, Krishna Bdr Shahi, Jivan Budha Magar
and Dipesh BK for the partial fulfillment of the requirement for the degree of Bachelor of
Science In Computer Science and Information Technology awarded by Tribhuvan University.

……………………………………
Bikash Balami
Supervisor/Lecturer
Department of Computer Science
Himalaya College of Engineering

……………………………………….
Mr. Roshan Bhusal
Head of Department
Department of Computer Science
Himalaya College of Engineering

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Contents

1. Introduction

2. Problem Definition

3. Objective

4. Literature Review

5. Methodology

6. Expected Result

References

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Introduction:-
Credit Card Fraud can be defined as “Unauthorized account activity by a person for which the
account was not intended [1]. In simple terms, Credit Card Fraud is defined as when an
individual uses another individual’s credit card for personal reasons while the owner of the card
and the card issuer are not aware of the fact that the card is being used. And the persons using the
card has not at all having the connection with the cardholder or the issuer and has no intention of
making the repayments for the purchase they done. In Credit Card Fraud consumer may face
trouble trying to get a fraudulent charge reversed, merchants lose the cost of the product sold,
pay chargeback fees, and fear from the risk of having their merchant account closed. According
to a recent survey, the rate at which credit card fraud occurs is 12 to 15 times higher than
physical world fraud [2].
Credit Card Fraud Detection is the process which is used to detect fraud. The technology for
detecting credit card frauds is advancing at a rapid pace- rules based systems, neural network,
chip cards and biometrics are some of the popular techniques employed by Issuing and
Acquiring banks these days.
Credit Card Fraud Detection Using Neural Network based on the ‘statistical knowledge’
contained in extensive database of historical transactions and fraudulent ones in particular. These
neural network models are basically trained by using examples of the both legitimate and
fraudulent transactions and are able to correlate and weigh various fraud indicators (e.g. unusual
transaction amount, card history etc.) to the occurrence of fraud. The principles of neural
networking are motivated by the functions of the brain – especially pattern recognition and
associative memory. The neural network recognizes similar patterns, predicting future values or
events based upon the associative memory of the patterns it has learned. Neural networks can be
created for supervised and/or unsupervised learning [3]. The user specifies the number of hidden
layer along with the number of nodes within a specific hidden layer. The output layer of the
neural network may contain one or several nodes depending upon the application. Recently,
neural network researchers have several associated methods from statistics and numerical
analysis into their networks. Neural networks can learn and summarizes the internal assumptions
of data even without knowledge of the potential data principles in advance. According to
Rumelhart, (1986), Neural networks topologies, or architectures, formed by organizing nodes
into layers and attach layers of neurons with modified weighted interconnections And it can
match its own behavior to the new environment along with the results of formation of evolution
capability from present environment to the new possible situation. Statistical methods are
sometime unusual in the practice research even though the common advantages of the neural
networks in application of credit card fraud detection. Neural network is a latest technique that is
being used in different areas due to its powerful capabilities of learning and predicting. In this
project we try to use this capability of neural network in the area of credit card fraud detection as
we know that Back propagation Network is the most popular learning algorithm to train the
neural network so in this paper BPN is used for training purpose and then in order to choose
those parameter (weight, network type, number of layer, number of node etc.) that play an
important role to perform neural network as accurately as possible, we use genetic algorithm, and
using this combined Genetic Algorithm and Neural Network(GANN) we try to detect the credit
card fraud successfully.

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Problem Definition:-
Credit card fraud detection is challenging task for the user. Online payment does not require
physical card. And if anyone who know the details of card can make the transactions. Currently,
card holder comes to know only after the fraud transaction is carried out. No proper mechanism
are there to track the fraud transaction.

Objective:-
The overall objective of this project is listed below:

 To reduce number of fraud transaction.

 To use credit card safely for online transaction.
 To add layer of security.

Literature Review:-
S. Ghosh and Doughas L.Reilly et al [4] describes the “Credit Card Fraud detection With
Neural Network (NN)”. In this method author use data from a credit card issuer, a neural
network based credit card 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 subsequent two- month of time. The neural network was trained o examples of
fraud due to stolen cards, lost cards, application fraud, and mail order fraud. The network
detected significantly more fraud accounts with significantly fewer false positive over rule
based fraud detection procedures.

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 Methodology:-
A. Working principal (Pattern Recognition)
Neural network based fraud detection is based totally on the human brain working principal.
Neural network technology has made a computer capable of think. As human brain learn through
past experience and use its knowledge or experience in making the decision in daily life problem
the same technique is applied with the credit card fraud detection technology. When a particular
consumer uses its credit card, there is a fix pattern of credit card use, made by the way consumer
uses its credit card. Using the last one or two year data neural network is train about the
particular pattern of using a credit card by a particular consumer. As shown in the figure the
neural network are train on information regarding to various categories about the card holder
such as occupation of the card holder, income, occupation may fall in one category, while in
another category information about the large amount of purchased are placed, these information
include the number of large purchase, frequencies of large purchase, location where these kind of
purchase are take place etc. within a fixed time period. In spite of pattern of credit card use
neural network are also trained about the various credit card fraud face by a particular bank
previously. Based on the pattern of uses of credit card, neural network make use of prediction
algorithm on these pattern data to classify that weather a particular transaction is fraudulent or
genuine. When credit card is being used by unauthorized user the neural network based fraud
detection system check for the pattern used by the fraudster and matches with the pattern of the
original card holder on which the neural network has been trained, if the pattern matches the
neural network declare the transaction ok.

Age, Income,
Occupation, of
card Holder

Number of large Transaction OK

purchases on the
card

Frequency of Transaction probably

large purchases fraudulent

Location where
large purchase
took
Input Layer Hidden Layer Output Layer

Fig. 2: Layer of Neural Network in Credit Card

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Expected Result:-
Improve merchants’ risk management level in an automatic and effective way, building an
accurate and easy handling credit card risk monitoring system. One aim of this project is to
identify the user mode that best identifies fraud cases. If credit card fraud detection using
Neural Network system is applied into bank credit card fraud detection system, the
probability of fraud transactions can be predicated soon after credit card transactions by the
banks.

References
[2] Tej Paul Bhatla, Vikram Prabhu, Amit Dua “Understanding Credit card Frauds” 2003;
page 1

[4] S. Ghosh and D.L. Reilly, “Credit Card Fraud Detection with Neural Network,” Proc. 27th
Hawaii Int’l Conf. System Science Information Sysytems: Decision Support and Knowledge
Based Systems, Vol-3, page 621-630, 1994.

[1] Suman, Nutan “Review paper on Credit Card Fraud Detection” International Journal of
Computer Trends and Technology (IJCTT)- volume 4 issue 2013; page 2212
http://www.ijcttjournal.org

[3] Chaudhary Khyati, Yadav Jyoti, Mallick Bhawna, “A review of Fraud Detection
Techniques: Credit Card” International Journal of Computer Applications (0975-8887)
Volume 45-No. 1, 2012

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