Horse race analysis in credit card fraud—deep learning, logistic regression, and Gradient Boosted Tree

Abstract

Fraud detection is an industry where incremental gains in predictive accuracy can have large benefits for banks and customers. Banks adapt models to the novel ways in which “fraudsters” commit credit card fraud. They collect data and engineer new features in order to increase predictive power. This research compares the algorithmic impact on the predictive power across three supervised classification models: logistic regression, gradient boosted trees, and deep learning. This research also explores the benefits of creating features using domain expertise and feature engineering using an autoencoder-an unsupervised feature engineering method. These two methods of feature engineering combined with the direct mapping of the original variables create six different feature sets. Across these feature sets this research compares the aforementioned models. This research concludes that creating features using domain expertise offers a notable improvement in predictive power. Additionally, the autoencoder offers a way to reduce the dimensionality of the data and slightly boost predictive power.