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Credit Card Fraud Detection Using

Hidden Markov Model

Name: Arushi Anand



                Now a day the usage of credit cards has dramatically increased. 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 this paper, we model the sequence of operations in credit card transaction processing using a Hidden Markov Model (HMM) and show how it can be used for the detection of frauds. An HMM is initially trained with the normal behavior of a cardholder. If an incoming credit card transaction is not accepted by the trained HMM with sufficiently high probability, it is considered to be fraudulent. At the same time, we try to ensure that genuine transactions are not rejected. We present detailed experimental results to show the effectiveness of our approach and compare it with other techniques available in the literature.


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 is 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 frauds 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.




1.      The detection of the fraud use of the card is found much faster that the existing system.


2.      In case of the existing system even the original card holder is also checked for fraud detection. But in this system no need to check the original user as we maintain a log.


3.      The log which is maintained will also be a proof for the bank for the transaction made.


4.      We can find the most accurate detection using this technique.



5.      this reduce the tedious work of an employee in the bank



Hardware Requirements


  • SYSTEM                    : Pentium IV 2.4 GHz
  • HARD DISK              : 40 GB
  • FLOPPY DRIVE       : 1.44 MB
  • MONITOR                 : 15 VGA colour
  • MOUSE                      : Logitech.
  • RAM                           : 256 MB



Software Requirements


  • Operating system        :- Windows XP Professional
  • Front End                    : - Asp .Net 2.0.
  • Coding Language       :- Visual C# .Net
  • Back-End                    : - Sql Server 2000.


Scope of the project


To detect and block from fraud transactions using a credit card.



Credit-card-based purchases can be categorized into two types: 1) physical card and 2) virtual card. In a physical-card based purchase, the cardholder presents his card physically to a merchant for making a payment. To carry out fraudulent transactions in this kind of purchase, an attacker has to steal the credit card. If the cardholder does not realize the loss of card, it can lead to a substantial financial loss to the credit card company. In the second kind of purchase, only some important information about a card (card number, expiration date, secure code) is required to make the payment. Such purchases are normally done on the Internet or over the telephone. To commit fraud in these types of purchases, a fraudster simply needs to know the card details. Most of the time, the genuine cardholder is not aware 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 inconsistency with respect to the "usual" spending patterns. Fraud detection based on the analysis of existing purchase data of cardholder is a promising way to reduce the rate of successful credit card frauds. Since humans tend to exhibit specific behaviorist 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. Deviation from such patterns is a potential threat to the system.


All the applications using credit cards.