Analysis on Credit Card Fraud Detection Methods

Due to the rise and rapid growth of E-Commerce, use credit cards for online purchases has dramatically increased and it caused an explosion in the credit card fraud. As credit card becomes the most popular mode of payment for both online as well as regular purchase, cases of fraud associated with it are also rising. In real life, fraudulent transactions are scattered with genuine transactions and simple pattern matching techniques are not often sufficient to detect those frauds accurately.

Implementation of efficient fraud detection systems has thus become imperative for all credit card issuing banks to minimize their losses. Many modern based on Artificial Intelligence, Data mining, Fuzzy logic, Machine learning, Sequence Alignment, Genetic Programming etc., has evolved in detecting various credit care fraudulent transactions. A clear understanding on all these approaches will certainly lead to an efficient credit card fraud detection system.

This paper presents a survey of various techniques used in credit card fraud detection mechanisms and evaluates each methodology based on certain design criteria.

Existing System:

In case of the existing system the fraud is detected after the fraud is done that is, the fraud is detected after the complaint of the card holder. And so the card holder faced a lot of trouble before the investigation finish. And also as all the transaction in maintained in a log, we need to maintain a huge data.

And also now a days lot of online purchase are made so we don’t know the person how is using the card online, we just capture the IP address for verification purpose. So there need a help from the cyber crime to investigate the fraud. To avoid the entire above disadvantage we propose the system to detect the fraud in a best and easy way.

Proposed System:

In proposed system, we present a Hidden Markov Model (HMM). Which does not require fraud signatures and yet is able to detect fraud by considering a cardholder’s spending habit. Card transaction processing sequence by the stochastic process of an HMM. The details of items purchased in Individual transactions are usually not known to any Fraud Detection System(FDS) running at the bank that issues credit cards to the cardholders. Hence, we feel that HMM is an ideal choice for addressing this problem.

Another important advantage of the HMM-based approach is a drastic reduction in the number of False Positives transactions identified as malicious by an FDS although they are actually genuine. An FDS runs at a credit card issuing bank. Each incoming transaction is submitted to the FDS for verification. FDS receives the card details and the value of purchase to verify, whether the transaction is genuine or not.

The types of goods that are bought in that transaction are not known to the FDS. It tries to find any anomaly in the transaction based on the spending profile of the cardholder, shipping address, and billing address, etc. If the FDS confirms the transaction to be of fraud, it raises an alarm, and the issuing bank declines the transaction.


  • New card
  • Login
  • Security Information
  • Transaction
  • Verification

Tools Used:

Front End : ASP .Net with C#
Back End : SQL Server 2000