Application of deep learning in fraud detection

With the financial and banking sector going digital, fraud detection has become an added task.
Deep Learning is aiding this sector through pattern identification in transactions and credit
scores. This enables fraud prevention and detection by highlighting unusual behavior. As stated
by (jeff,2020), Autoencoders in TensorFlow and Keras are built to identify credit card frauds,
thereby saving large amounts of money. While Machine Learning mostly draws attention to the
cases of fraud that demand human deliberation, Deep Learning is trying to minimize these
efforts. Deep Learning examples in fraud detection: Development of risk profiles, e-commerce,
payment fraud prevention, identity theft solutions, fraud detection in e-commerce, email risk
scoring, banking, etc. Fraud detection def- Is a set of activities undertaken to prevent money or
property from being obtained through false pretenses.

Deep learning definition - Is a type of machine learning and AI that imitates the way humans
gain certain type of knowledge. It is a subfield of machine learning concerned with algorithms
inspired by the structure and function of the brain called artificial neural networks.

Fraud detection with machine learning becomes possible due to the ability of machine learning
algorithms to learn from historical fraud patterns and recognize them in future transactions.

Types of Internet Fraud and How to Prevent Them

Email phishing

Email phishing is a kind of cybercrime that involves spreading fake sites and messages to users,
then using the data they share as a result. As stated by (Olena,2021), Email phishing has become
a popular and fast way to steal confidential data. If a person is not aware of the possible
consequences, he or she may enter their vulnerable data into the fake access window and put
themselves at a big risk of being compromised. The easiest way to avoid this is to ignore
messages coming from suspicious sources. Although in some cases it is harder to distinguish a
real email sender from a fraudster, because some messages look pretty legitimate. There are
traditional methods for phishing detection known as filters. The first one is authentication
protection and the second one is network-level protection. Network-level protection splits into
three types of filters: whitelist, blacklist, and pattern matching. They work through banning IP
address and domains from networks. Authentication protection includes email verification,
which implies client-level verification through requiring the completion of a submission from the
receiver and the sender. Apart from traditional methods, which are fading into the past, there are
automated methods for Phishing Detection with Machine Learning. These methods are based on
classical Machine Learning algorithms for classification and regression.

Payment Fraud (credit card and bank loan scams)

Payment fraud detection is the most common fraud type tackled by Artificial Intelligence (AI).
Its variations are as diverse as fraudsters’ imaginations. However, here are a few of the most
common types of payment fraud: lost cards, stolen cards, counterfeit cards, card ID theft, and
card non-receipt. The recent advent of cards with a chip (EMV cards) helped reduce card-
present fraud cases in Europe, but not in the United States where the magnetic stripe credit card
elimination process is pretty slow Card-not-present transactions occur in a variety of forms. After
attacking a user in ways that enable a criminal to collect enough card details through phishing,
contacting his or her mobile provider, and breaking into the account online, the fraudster orders
goods or takes out loans. A loan scam may happen if someone contacts you to offer a loan with
unrealistically good conditions, the lender does not provide a check that confirms the loan, the
lender asks for bank details or upfront payment, or the company pretends to be from a certain
country but the number is international. Fraudsters can also make illegitimate charges through
application fraud, meaning that they apply for a card in your name by filling in the stolen
information. After obtaining confidential information through different methods online, they can
call the credit card company and pretend to be the cardholder to say they need a new credit card
to be sent to a certain address. The address can be changed in your account if it was
compromised.

Identity theft

Information such a victim’s name, bank details, email address, passwords, passport or
identification details, and other valuable information to gain access to accounts is under great
threat if a professional identity thief comes into the game. Identity theft is a critical form of
cybercrime, putting both individuals and enterprises at the risk of unpleasant consequences.
There are three types of identity theft: real name theft, synthetic theft, and account takeover. The
collected information is used to register new bank, credit card, and/or mobile phone accounts.
Account takeover: This happens when information is used to gain access to a current account.
Sometimes the fraudster may also alter e-mail addresses and other details linked to the account,
and the proper owner will not be aware of the changes. Synthetic theft: This implies merging true
information and artificial details to make a new personality. The purpose of this is to make
illegal purchases and create counterfeit accounts. Identity theft can hit you when you expect it
the least, such as when you are informed that your bank account has a zero balance — although
yesterday you know you had money there — or you get bills for services or products you never
ordered. Identity theft is dangerous, because the consequences (which may take years to rectify)
can take one of the following forms:

you are rejected for credit because you now have a bad reputation;

you receive bills for services you never used;

your bank account(s) is closed; and/or

you’re held responsible for debt that you did not incur.

Unlike robbery, identity theft can go completely unnoticed before the victim encounters a
dramatic loss. The “red flags” for understanding that you have become a victim are unknown
transactions or increasing debt on a credit card, the source of which is unknown to you. Mail
about the spent money can go to another address of the criminal’s choice. Thus, you will not
know about the situation right away. Machine Learning for identity theft detection helps examine
and check identity documents against secure databases in real-time to ensure all fraud cases will
be detected. Valuable documents that can be used for identity theft are passports, PAN cards, or
driver’s licenses. To enhance the security provided with Machine Learning, additional
verification such as face recognition or biometric information can be required. These security
methods demand real individuals to authenticate the operation and significantly lower the chance
for successful fraud.

ID document forgery

Before, a person could only buy a fake ID for a lot of money in the black market — but now,
with the boom of E-Commerce, various websites offer their forging services for as little as $100
and as much as $3,000 for one document. The lower the price of a fake document, the poorer its
quality. Expensive IDs are fabricated so masterfully that it becomes nearly impossible to verify
their legitimacy and prevent fraud. The fact that fake IDs have become easier to get puts the
safety of many services that have automated personality verification systems at risk, along with
the safety of service owners and users. If a person has fooled the system and got verified, he or
she can then use the resource for their interests and get away with it, leaving other users fooled
and distressed. There are ways Machine Learning can prevent fake ID-related fraud. For
example, perhaps a criminal downloaded a forged document to prove his personality on an
apartment rental site. If the site’s verification system has Machine Learning in it, the photo is
scanned by a pre-trained Neural Network. Then, the fraud detection system searches fake
document patterns that it has seen in numerous fake documents before, classifies the document
as fake or suspicious, and — if needed —additional verification is required.

Fake account identification

Identity verification problems also refer to social media accounts. The process of verifying such
accounts includes checking the account registration details, the accessing network, and finally
the IP and MAC address of the device creating accounts with the same personality (i.e., photo).

The process of fake account detection depends on the rate of engagement and false activity.
According to (Priyanka,2020), it is assumed that fake accounts usually have a large number of
friends or followers while their profiles hardly show any sign of user interactions. Also, there is
usually a large number of likes, comments, and friend requests from the fake account that are
noticeably higher than the average for real users. These factors relate to users of social media
sites such as Twitter, Facebook or Instagram, but it is also possible to identify users who register
many inactive accounts on retail or other sites. This can be defined by features such as the date
of registration, amount of time spent on the site, and the IP and MAC address of the user’s
device.
 References

Jeff, F (2020, November 17) Fraud Detection using Deep learning.

Olena. (2021, August 22) How to use AI and machine learning in fraud detection.
https://spd.group/machine-learning/fraud-detection-with-machine-learning/

Priyanka, K (2020, August 1) Fake Account Detection using deep learning.

T. Thongkamwitoon, H. Muammar, and P.-L. Dragotti, (2015) “An Image Recapture Detection
Algorithm based on Learning Dictionaries of Edge Profiles,” IEEE Transactions on Information
Forensics and Security.