Credit Card Fraud Detection Using Hidden Markov Information Technology Essay

2497 words (10 pages) Essay

1st Jan 1970 Information Technology Reference this

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In these days the credit is used everywhere. The usage of the credit card is normally increased. As credit became the most admired method of the payment method for both online and in the regular purchase, Many fraud cases also occurred in the case of the credit cards. In this topic we are going to discuss about the credit card transaction processing using the Hidden Markov Model(HMM) and demonstrate that how it will works and how it detects the frauds. Firstly an HMM is trained with the normal behaviour of a cardholder. In case of the customers who are using the credit card transaction is not matched by the trained HMM, then i t is considered as to be fraud. Try to ensure that authentic transactions are not rejected. Now we are detail discussed about the experimental results to show the effectiveness of approach and compare it with the other techniques available in the literature.

2. Introduction:

Purchases using by the credit cards are two types. They are classified as:

1. Physical card

2. Virtual card

Physical card: In this physical card purchased system, the cardholder presents his card physically gives to the vendor for making a payment. To carry out false transactions in this kind of purchase, there is a chance of attacker has to theft the credit card. The credit card company have to face the loss of money like financial issued if the cardholder does not recognize the loss of card.

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Virtual card: In the second type of the card that is Virtual card purchased system we need to know some important information about the card holder like the card number, issue date and expiry date and security code is required to make the payment. These type of purchases we can use when purchasing in online or making the payments by the phone like mobile top-ups etc. To commit the fraud in these type of purchases, the fraudster has to know about the card holder details. It is not that much of easy to find. Most of the time, the real cardholder is not alert 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 irregularity with respect to the “usual” spending patterns. The Fraud detection is mainly based on the analysis of the purchase which they done like existing purchase of the data holder. The cardholder keep that receipt, when card holder purchasing something next time. Then compare both two values then card holder can recognise easily what is last amount and now beginning amount..Since humans tend to demonstrate specific behaviourist 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. Digression from such patterns is a potential threat to the system.

3.Proposed System or Need :

A fraud Detection system is run on the bank of credit card issued. The each incoming transaction is send to the fraud detection system for verification. Fraud detection system receives the card holder details and it verifies that the transaction is actual transaction or not. The type of items or products they purchased in that transaction are not known to the fraud detection system. This always tries to find any abnormality in the transaction depending on the profile of the card holder who doing shopping, shipping address and billing address etc. If the fraud detection system verifies that the transaction to be not valid or it to be malicious, it raises an alarm and the credit card transaction was declined by the issued bank. Then the card holder should be contacted and prepared about the possibility that the card is settlemented. Then card holder discuss the problem with issued bank member to sort out the problem.

1.HMM Model for Credit Card Transaction Processing

2. Dynamic Generation of Observation Symbols

3. Spending Profile of Cardholders

4. Fraud Detection

Advantages:

1. The credit card fraud detection is found much better than that already existing system.

2. In the case of the newly proposed system there is no need to check original card holders fraud detection for this we keep log. But in the case of already existing system the original card holders also check for the fraud detection.

3. This log is helpful for the bank also. When the transaction is made it is helpful to the cardholder to logging by this process.

4. The most perfect detection using this technique we can find.

5. This process is to reduce the monotonous work of an employee in bank.

4. PROBLEM IN EXISTING SYSTEM :

Where in case of the already existing system the fraud is detected after the fraud is done of the cardholder, tan also When the compliment of the card holder then only the fraud is detected, detected after the complaint of the holder. There are the lot of issues cardholder have to face in the time of the investigation. And so the card holder faced a lot of trouble before the investigation finish. It a problem that maintained the lot of data and also as all the transaction is preserve in a log, we need to maintain a huge data, and also now a day’s lot of online purchase are made so we don’t estimate the person how is using the card online to purchase the products, we just incarcerate or save the IP address for verification purpose. Finally there need a help from the cyber crime to inspect the fraud. To avoid the entire above all disadvantage we propose the system to detect the fraud in a best easy way.

Modules:

1. New card

2. Login

3. Security information

4. Transaction

5. Verification

5.Module Description

5.1 New Card :

In this module, we need to give the new card to the customer. For this the people need that the information details about the customer. The information is all about Their contact details. They can create their own and password for their future use of the card. It is better to choose the passwords as strong by protecting from the hackers. It is better to keep like combination of the alphabets, including numeric values and also mixture of the special characters. If we keep like this we can reduce the fraud.

5.2 Login:

In login form module contains site visitors with a form with username and password fields . There are two option available if cardholder is already existing they can directly enter their user name and password they can directly goes to the home page. If the cardholder is new to this site then he has to be registered in the site with valid username and contact details. if the user enters a valid username and password combination they will be granted access to additional resources on websites .Which additional resources they will have access to can be configured separately.

5.3 Security information :

This is the very important thing when processing an credit card. In security information module it will get the information details of the cardholder and its store’s in database. If the card lost or stolen then the information module form take place .It has a set of question where the user or card holder has to answer the correctly to move to the transaction section. It contain informational privacy and informational autonomy are addressed accurately by the invention affording persons and entities a trusted means to user, search, process and exchange personal and /or confidential information. The credit issuer will takes the responsibility of the cardholder.

5.4Transaction:

The method and equipment for pre-authorizing transactions includes providing a communications device to a retailer and credit card owner. The credit card holder begin a credit card transaction by communicating to a credit card number, and storing therein, a individual piece of information that characterizes a specific transaction to be made by an authorized user of the credit card at a later time. The information is established as “network date” in the data in the date base only if a correct personal identification code (PIC) used with the communication . The “Network data “will serve to later authorize that specific transaction. The credit card owner or other authorized user can then only make that specific transaction with the credit card. Because transaction pre- authorized, the vendor does need to see or transmit a PIC.

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When the transaction is processing there is an additional idea is added to the transaction. That is when the cardholder enter the PIN number three times. It is valid after that the cardholder Pin should be blocked. When the cardholder is registering new to the site keep some security questions. If the card holder reporting to the credit card issuer then they ask the security questions they must answers for those question. Then they re-active the cardholders account. They can use now normally.

5.5 Verification:

Verification information is provided with admiration to a transaction between an initiating party and a verification-seeking party, the verification information being given by a third , verifying party, based on classified information in the custody of the initiating party. In verification the process will seeks card number and if the card number is correct the relevant process will be executed. If the number is wrong, mail will be sent to the user saying the card no has been block and he can’t do the further transaction.

6. Module Input and output :

New card:

Give input -Request from the user for the card.

Expected Output -Assigning an account to requested user.

Login :

Given input- give the security information by answering security questions.

Expected output- Updating of account with the security details.

Verification :

Given input-information with user’s stored details like security answers or hidden details expected output- if the verification is success user and perform transaction , else blocks the card.

6.1 Object diagram :

Security Info

Verification

Complete Transaction

Transaction

Login

SYSTEM STUDY:

7. FEASIBILITY STUDY

The feasibility of the project is analyzed in this phase and business proposal is put forth with a very general plan for the project and some cost estimates. During system analysis the feasibility study of the proposed system is to be carried out. This is to ensure that the proposed system is not a burden to the company. For feasibility analysis, some understanding of the major requirements for the system is essential.

Three key considerations involved in the feasibility analysis are

ECONOMICAL FEASIBILITY

TECHNICAL FEASIBILITY

SOCIAL FEASIBILITY

7.1 ECONOMICAL FEASIBILITY

This study is carried out to check the economic impact that the system will have on the organization. The amount of fund that the company can pour into the research and development of the system is limited. The expenditures must be justified. Thus the developed system as well within the budget and this was achieved because most of the technologies used are freely available. Only the customized products had to be purchased.

7.2 TECHNICAL FEASIBILITY:

This study is carried out to check the technical feasibility, that is, the technical requirements of the system. Any system developed must not have a high demand on the available technical resources. This will lead to high demands on the available technical resources. This will lead to high demands being placed on the client. The developed system must have a modest requirement, as only minimal or null changes are required for implementing this system.

7.3 SOCIAL FEASIBILITY

The aspect of study is to check the level of acceptance of the system by the user. This includes the process of training the user to use the system efficiently. The user must not feel threatened by the system, instead must accept it as a necessity. The level of acceptance by the users solely depends on the methods that are employed to educate the user about the system and to make him familiar with it. His level of confidence must be raised so that he is also able to make some constructive criticism, which is welcomed, as he is the final user of the system.

8.SYSTEM IMPLEMENTATION

Implementation is the stage of the project when the theoretical design is turned out into a working system. Thus it can be considered to be the most critical stage in achieving a successful new system and in giving the user, confidence that the new system will work and be effective. The accomplishment stage involves careful planning, investigation of the existing system and it’s constraints on achievement, designing of methods to accomplish changeover and evaluation of changeover methods.

Implementation is the process of converting a new system design into operation. It is the phase that focuses on user training, site preparation and file conversion for installing a candidate system. The important factor that should be considered here is that the conversion should not disrupt the functioning of the organization.

9. SCOPE FOR FUTURE ENHANCEMENTS

The project has covered almost all the requirements. Further requirements and improvements can easily be done since the coding is mainly structured or modular in nature. Improvements can be appended by changing the existing modules or adding new modules. One important development that can be added to the project in future is file level backup, which is presently done for folder level.

10. CONCLUSIONS AND DISCUSSIONS

In this paper, we have proposed an application of HMM in credit card fraud detection. The different steps in credit card transaction processing are represented as the underlying stochastic process of an HMM. We have used the ranges of transaction amount as the observation symbols, whereas the types of item have been considered to be states of the HMM. We have suggested a method for finding the spending profile of cardholders, as well as application of this knowledge in deciding the value of observation symbols and initial estimate of the model parameters. It has also been explained how the HMM can detect whether an incoming transaction is fraudulent or not. Investigational results show the performance and effectiveness of our system and demonstrate the usefulness of learning the spending profile of the cardholders. Comparative studies reveal that the Accuracy of the system is close to 80 percent over a wide variation in the input data. The system is also scalable for handling large volumes of transactions.

In these days the credit is used everywhere. The usage of the credit card is normally increased. As credit became the most admired method of the payment method for both online and in the regular purchase, Many fraud cases also occurred in the case of the credit cards. In this topic we are going to discuss about the credit card transaction processing using the Hidden Markov Model(HMM) and demonstrate that how it will works and how it detects the frauds. Firstly an HMM is trained with the normal behaviour of a cardholder. In case of the customers who are using the credit card transaction is not matched by the trained HMM, then i t is considered as to be fraud. Try to ensure that authentic transactions are not rejected. Now we are detail discussed about the experimental results to show the effectiveness of approach and compare it with the other techniques available in the literature.

2. Introduction:

Purchases using by the credit cards are two types. They are classified as:

1. Physical card

2. Virtual card

Physical card: In this physical card purchased system, the cardholder presents his card physically gives to the vendor for making a payment. To carry out false transactions in this kind of purchase, there is a chance of attacker has to theft the credit card. The credit card company have to face the loss of money like financial issued if the cardholder does not recognize the loss of card.

Virtual card: In the second type of the card that is Virtual card purchased system we need to know some important information about the card holder like the card number, issue date and expiry date and security code is required to make the payment. These type of purchases we can use when purchasing in online or making the payments by the phone like mobile top-ups etc. To commit the fraud in these type of purchases, the fraudster has to know about the card holder details. It is not that much of easy to find. Most of the time, the real cardholder is not alert 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 irregularity with respect to the “usual” spending patterns. The Fraud detection is mainly based on the analysis of the purchase which they done like existing purchase of the data holder. The cardholder keep that receipt, when card holder purchasing something next time. Then compare both two values then card holder can recognise easily what is last amount and now beginning amount..Since humans tend to demonstrate specific behaviourist 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. Digression from such patterns is a potential threat to the system.

3.Proposed System or Need :

A fraud Detection system is run on the bank of credit card issued. The each incoming transaction is send to the fraud detection system for verification. Fraud detection system receives the card holder details and it verifies that the transaction is actual transaction or not. The type of items or products they purchased in that transaction are not known to the fraud detection system. This always tries to find any abnormality in the transaction depending on the profile of the card holder who doing shopping, shipping address and billing address etc. If the fraud detection system verifies that the transaction to be not valid or it to be malicious, it raises an alarm and the credit card transaction was declined by the issued bank. Then the card holder should be contacted and prepared about the possibility that the card is settlemented. Then card holder discuss the problem with issued bank member to sort out the problem.

1.HMM Model for Credit Card Transaction Processing

2. Dynamic Generation of Observation Symbols

3. Spending Profile of Cardholders

4. Fraud Detection

Advantages:

1. The credit card fraud detection is found much better than that already existing system.

2. In the case of the newly proposed system there is no need to check original card holders fraud detection for this we keep log. But in the case of already existing system the original card holders also check for the fraud detection.

3. This log is helpful for the bank also. When the transaction is made it is helpful to the cardholder to logging by this process.

4. The most perfect detection using this technique we can find.

5. This process is to reduce the monotonous work of an employee in bank.

4. PROBLEM IN EXISTING SYSTEM :

Where in case of the already existing system the fraud is detected after the fraud is done of the cardholder, tan also When the compliment of the card holder then only the fraud is detected, detected after the complaint of the holder. There are the lot of issues cardholder have to face in the time of the investigation. And so the card holder faced a lot of trouble before the investigation finish. It a problem that maintained the lot of data and also as all the transaction is preserve in a log, we need to maintain a huge data, and also now a day’s lot of online purchase are made so we don’t estimate the person how is using the card online to purchase the products, we just incarcerate or save the IP address for verification purpose. Finally there need a help from the cyber crime to inspect the fraud. To avoid the entire above all disadvantage we propose the system to detect the fraud in a best easy way.

Modules:

1. New card

2. Login

3. Security information

4. Transaction

5. Verification

5.Module Description

5.1 New Card :

In this module, we need to give the new card to the customer. For this the people need that the information details about the customer. The information is all about Their contact details. They can create their own and password for their future use of the card. It is better to choose the passwords as strong by protecting from the hackers. It is better to keep like combination of the alphabets, including numeric values and also mixture of the special characters. If we keep like this we can reduce the fraud.

5.2 Login:

In login form module contains site visitors with a form with username and password fields . There are two option available if cardholder is already existing they can directly enter their user name and password they can directly goes to the home page. If the cardholder is new to this site then he has to be registered in the site with valid username and contact details. if the user enters a valid username and password combination they will be granted access to additional resources on websites .Which additional resources they will have access to can be configured separately.

5.3 Security information :

This is the very important thing when processing an credit card. In security information module it will get the information details of the cardholder and its store’s in database. If the card lost or stolen then the information module form take place .It has a set of question where the user or card holder has to answer the correctly to move to the transaction section. It contain informational privacy and informational autonomy are addressed accurately by the invention affording persons and entities a trusted means to user, search, process and exchange personal and /or confidential information. The credit issuer will takes the responsibility of the cardholder.

5.4Transaction:

The method and equipment for pre-authorizing transactions includes providing a communications device to a retailer and credit card owner. The credit card holder begin a credit card transaction by communicating to a credit card number, and storing therein, a individual piece of information that characterizes a specific transaction to be made by an authorized user of the credit card at a later time. The information is established as “network date” in the data in the date base only if a correct personal identification code (PIC) used with the communication . The “Network data “will serve to later authorize that specific transaction. The credit card owner or other authorized user can then only make that specific transaction with the credit card. Because transaction pre- authorized, the vendor does need to see or transmit a PIC.

When the transaction is processing there is an additional idea is added to the transaction. That is when the cardholder enter the PIN number three times. It is valid after that the cardholder Pin should be blocked. When the cardholder is registering new to the site keep some security questions. If the card holder reporting to the credit card issuer then they ask the security questions they must answers for those question. Then they re-active the cardholders account. They can use now normally.

5.5 Verification:

Verification information is provided with admiration to a transaction between an initiating party and a verification-seeking party, the verification information being given by a third , verifying party, based on classified information in the custody of the initiating party. In verification the process will seeks card number and if the card number is correct the relevant process will be executed. If the number is wrong, mail will be sent to the user saying the card no has been block and he can’t do the further transaction.

6. Module Input and output :

New card:

Give input -Request from the user for the card.

Expected Output -Assigning an account to requested user.

Login :

Given input- give the security information by answering security questions.

Expected output- Updating of account with the security details.

Verification :

Given input-information with user’s stored details like security answers or hidden details expected output- if the verification is success user and perform transaction , else blocks the card.

6.1 Object diagram :

Security Info

Verification

Complete Transaction

Transaction

Login

SYSTEM STUDY:

7. FEASIBILITY STUDY

The feasibility of the project is analyzed in this phase and business proposal is put forth with a very general plan for the project and some cost estimates. During system analysis the feasibility study of the proposed system is to be carried out. This is to ensure that the proposed system is not a burden to the company. For feasibility analysis, some understanding of the major requirements for the system is essential.

Three key considerations involved in the feasibility analysis are

ECONOMICAL FEASIBILITY

TECHNICAL FEASIBILITY

SOCIAL FEASIBILITY

7.1 ECONOMICAL FEASIBILITY

This study is carried out to check the economic impact that the system will have on the organization. The amount of fund that the company can pour into the research and development of the system is limited. The expenditures must be justified. Thus the developed system as well within the budget and this was achieved because most of the technologies used are freely available. Only the customized products had to be purchased.

7.2 TECHNICAL FEASIBILITY:

This study is carried out to check the technical feasibility, that is, the technical requirements of the system. Any system developed must not have a high demand on the available technical resources. This will lead to high demands on the available technical resources. This will lead to high demands being placed on the client. The developed system must have a modest requirement, as only minimal or null changes are required for implementing this system.

7.3 SOCIAL FEASIBILITY

The aspect of study is to check the level of acceptance of the system by the user. This includes the process of training the user to use the system efficiently. The user must not feel threatened by the system, instead must accept it as a necessity. The level of acceptance by the users solely depends on the methods that are employed to educate the user about the system and to make him familiar with it. His level of confidence must be raised so that he is also able to make some constructive criticism, which is welcomed, as he is the final user of the system.

8.SYSTEM IMPLEMENTATION

Implementation is the stage of the project when the theoretical design is turned out into a working system. Thus it can be considered to be the most critical stage in achieving a successful new system and in giving the user, confidence that the new system will work and be effective. The accomplishment stage involves careful planning, investigation of the existing system and it’s constraints on achievement, designing of methods to accomplish changeover and evaluation of changeover methods.

Implementation is the process of converting a new system design into operation. It is the phase that focuses on user training, site preparation and file conversion for installing a candidate system. The important factor that should be considered here is that the conversion should not disrupt the functioning of the organization.

9. SCOPE FOR FUTURE ENHANCEMENTS

The project has covered almost all the requirements. Further requirements and improvements can easily be done since the coding is mainly structured or modular in nature. Improvements can be appended by changing the existing modules or adding new modules. One important development that can be added to the project in future is file level backup, which is presently done for folder level.

10. CONCLUSIONS AND DISCUSSIONS

In this paper, we have proposed an application of HMM in credit card fraud detection. The different steps in credit card transaction processing are represented as the underlying stochastic process of an HMM. We have used the ranges of transaction amount as the observation symbols, whereas the types of item have been considered to be states of the HMM. We have suggested a method for finding the spending profile of cardholders, as well as application of this knowledge in deciding the value of observation symbols and initial estimate of the model parameters. It has also been explained how the HMM can detect whether an incoming transaction is fraudulent or not. Investigational results show the performance and effectiveness of our system and demonstrate the usefulness of learning the spending profile of the cardholders. Comparative studies reveal that the Accuracy of the system is close to 80 percent over a wide variation in the input data. The system is also scalable for handling large volumes of transactions.

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