Credit Card Fraud Detection Using K-Means and Fuzzy C-Means

Credit Card Fraud Detection Using K-Means and Fuzzy C-Means

Arti Jain, Archana Purwar, Divakar Yadav
Copyright: © 2021 |Pages: 25
DOI: 10.4018/978-1-7998-6870-5.ch016
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Abstract

Machine learning (ML) proven to be an emerging technology from small-scale to large-scale industries. One of the important industries is banking, where ML is being adapted all over the world by employing online banking. The online banking is using ML techniques in detecting fraudulent transactions like credit card fraud detection, etc. Hence, in this chapter, a Credit card Fraud Detection (CFD) system is devised using Luhn's algorithm and k-means clustering. Moreover, CFD system is also developed using Fuzzy C-Means (FCM) clustering instead of k-means clustering. Performance of CFD using both clustering techniques is compared using precision, recall and f-measure. The FCM gives better results in comparison to k-means clustering. Further, other evaluation metrics such as fraud catching rate, false alarm rate, balanced classification rate, and Mathews correlation coefficient are also calculated to show how well the CFD system works in the presence of skewed data.
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1. Introduction

Credit card is a plastic card, which is handy, and is provided to customer through which he is offered credit to make payment for products and services, usually when there is no cash in hand. The customer is facilitated to pay back his credited money to the card-issuing bank afterwards. The usage of credit card was originated in USA during 1920s’. At present, the credit card holders are spread across the globe, especially in countries like Unite Kingdom, Spain, Greece, Belgium, Italy, Ireland, and Germany etc. The cards are associated with well-known credit card merchants such as American Express, Barclaycard, and Citibank who offer varied services to customers, depending upon portfolios- card fee, credit limit, late payment fee, exchange rate fee, rate of interest and so on. The U.S. Census Bureau and Nilson Report1 show that there are a total of 1.06 billion credit cards in 2017, and projection of 1.2 billion by the 2022. The economical internet and smart devices execute the credit card transaction easy, handy and contented. Because of easiness with the payment mode, the fast usage of credit card is more or less unavoidable especially in the e-commerce transactions. The wide spectrum of credit card as a transaction medium for the purchase or shopping purposes is exponentially been increased. However, it is quite unfortunate that the fraudulent usage of this digital card is becoming a vulnerable source of crime.

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