Credit card fraud detection using machine learning with integration of contextual knowledge

We have proposed a strategy for the creation of attributes based on hidden Markov models (HMM) characterizing the transaction from different points of view. This strategy makes it possible to integrate a broad spectrum of sequential information into the attributes of transactions. In fact, we model the authentic and fraudulent behavior of merchants and card holders according to two univariate characteristics: the date and the amount of transactions. In addition, attributes based on HMMs are created in a supervised manner, thereby reducing the need for expert knowledge for the creation of the fraud detection system. Ultimately, our HMM-based multi-perspective approach allows automated data pre-processing to model time correlations to complement and eventually replace transaction aggregation strategies to improve detection efficiency. Experiments carried out on a large set of credit card transaction data from the real world (46 million transactions carried out by Belgian card holders between March and May 2015) have shown that the strategy proposed for data preprocessing based on HMM can detect more fraudulent transactions when combined with the strategy of preprocessing reference data based on expert knowledge for the detection of credit card fraud