Data mining application in credit card fraud detection system

Abstract

Data mining is popularly used to combat frauds because of its effectiveness. It is a well-defined procedure that takes data as input and produces models or patterns as output. Neural network, a data mining technique was used in this study. The design of the neural network (NN) architecture for the credit card detection system was based on unsupervised method, which was applied to the transactions data to generate four clusters of low, high, risky and high-risk clusters. The self-organizing map neural network (SOMNN) technique was used for solving the problem of carrying out optimal classification of each transaction into its associated group, since a prior output is unknown. The receiver-operating curve (ROC) for credit card fraud (CCF) detection watch detected over 95 % of fraud cases without causing false alarms unlike other statistical models and the two-stage clusters. This shows that the performance of CCF detection watch is in agreement with other detection software, but performs better.