A PROJECT REPORT ON SOIL-BASED FERTILIZER

RECOMMENDATION SYSTEM

“CREDIT CARD FRAUD DETECTION USING MACHINE

LEARNING”
SUBMITTED TO THE SANDIP UNIVERSITY, NASHIK
IN THE PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE AWARD OF THE DEGREE

OF

BACHELOR OF TECHNOLOGY
IN
COMPUTER SCIENCE AND ENGINEERING (B. Tech C.S.E)

SUBMITTED BY

TANMAY SAYANDE 210105131104

DEVESH PATIL 210105131139
DURGESH THAKOR 210105131133
PRATIK PATIL 210105131061

SCHOOL OF COMPUTER SCIENCES AND ENGINEERING

SANDIP UNIVERSITY, NASHIK

AY 2024-2025

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 CERTIFICATE

This is to certify that the project report entitles

“CREDIT CARD FRAUD DETECTION USING MACHINE

LEARNING”
Submitted by

TANMAY SAYANDE 210105131104

DEVESH PATIL 210105131139
DURGESH THAKOR 210105131133
PRATIK PATIL 210105131061

is a bonafide student of this school and the work has been carried out by him/her under the
supervision of Prof. P. R .Patil and it is approved for the partial fulfillment of the requirement of
Sandip University, for the award of the degree of Bachelor of Technology (Computer Sciences
and Engineering).

(Prof. P. R .Patil) (Dr. Pawan R. Bhaladhare)

Guide Head of Department

External Examiner

Dean, SOCSE
Place : Nashik
Date :
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 ACKNOWLEDGEMENT

We are profoundly grateful to Prof. P. R .Patil, our Project Guide for his expert guidance and
continuous encouragement all the time since the projects commencement to its completion.

We express deepest appreciation towards our Project Coordinator, for continuously letting us know
about the upcoming project competitions, improvement and additions of the modules in the project

We must express sincere heartfelt gratitude towards Dr. Pawan R. Bhaladhare, Head of
Department of Computer Science and Engineering, and to all the staff members of Computer
Science and Engineering Department who saw our growth and helped us in every way possible.

TANMAY SAYANDE 210105131104

DEVESH PATIL 210105131139
DURGESH THAKOR 210105131133
PRATIK PATIL 210105131061

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 ABSTRACT

Credit card fraud has emerged as a critical challenge in the digital economy, impacting both
financial institutions and consumers. The rapid advancement of online transactions and e-
commerce has expanded the surface for fraudulent activities, necessitating more sophisticated
detection mechanisms. Traditional fraud detection methods, primarily based on rule-based
systems, have proven insufficient against evolving fraud patterns. Machine learning techniques
have demonstrated promising capabilities in enhancing fraud detection accuracy by analyzing vast
amounts of transaction data, recognizing complex patterns, and adapting to new forms of fraud in
real time.
This paper provides a comprehensive review of machine learning methodologies employed in
credit card fraud detection. We explore various algorithms, including supervised learning
techniques like Logistic Regression, Random Forest, and Support Vector Machines, as well as
unsupervised learning methods and ensemble techniques. By utilizing historical transaction data,
these models are trained to identify anomalies in real-time transactions based on specific criteria
such as transaction amount, location, time, and purchase frequency. The study examines each
model’s strengths, limitations, and practical applications, along with an analysis of their
performance in real-world scenarios and the role of data preprocessing and feature engineering in
improving accuracy.
Future prospects in credit card fraud detection through machine learning are promising, with
advances in deep learning, reinforcement learning, and hybrid models showing significant
potential to reduce false positives and improve detection rates. This review highlights current
trends and discusses key challenges, including data imbalance and interpretability of machine
learning models in this domain. By leveraging these insights, financial institutions can implement
more resilient and adaptive fraud detection frameworks, thereby enhancing security for both
customers and stakeholders.

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 TABLE OF CONTENTS

LIST OF ABBREVATIONS i
LIST OF FIGURES ii
LIST OF TABLES iii

Sr. No. Title of Chapter Page No.

01 Introduction 10
1.1 Overview
1.2 Motivation
1.3 Problem Definition and Objectives
1.4 Project Scope & Limitations
02 Literature Survey 15
03 Software Requirements Specification 16
3.1 System Requirements
3.1.1 Database Requirements
3.1.2 Software Requirements
3.1.3 Hardware Requirements
04 System Design 20
4.1 System Architecture
4.2 Mathematical Model
4.3 Data Flow Diagrams
4.4 Entity Relationship Diagrams
4.5 UML Diagrams
05 Project Plan 28
5.1 Project Estimate
5.1.1 Reconciled Estimates
5.1.2 Project Resources
5.3 Project Schedule
5.3.1 Project Task Set
5.3.2 Task Network
5.3.3 Timeline Chart

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 5.4 Team Organization
5.4.1 Team structure
5.4.2 Management reporting and communication
06 Project Implementation 32
6.1 Overview of Project Modules
6.2 Algorithm Details
6.3 Implementation Overview
07 Conclusions and Future Scope 43
References 45

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 LIST OF ABBREVATIONS

ABBREVIATIONS ILLUSTRATION
CSP Cloud Service Provider
CDH Computational Diffie-Hellman
DDH Decisional Diffie-Hellman
ECDH Elliptic Curve Diffie-Hellman
ECDLP Elliptic Curve Discrete Logarithm Problem

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 LIST OF FIGURES
FIGURE ILLUSTRATION PAGE NO.

4.1 System Architecture 18

4.6 Flow diagram if the methodology implemented 22
4.7 Entity Relationship Diagram 23
4.8 Sequence Diagram 23
4.9 Use case Diagram 24
6.1 Implementation Overview 34

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 LIST OF TABLES
TABLE ILLUSTRATION PAGE NO.
5.1 Project Plan 29
5.2 List Of Developers 47
5.3 List Of Tasks 48
5.4 Task Distribution 48

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 INTRODUCTION

In recent years, the widespread adoption of digital payments has transformed the way
individuals and businesses conduct financial transactions, making credit cards a primary
mode of payment in both online and offline environments. As a result, the incidence of
credit card fraud has significantly increased, posing severe financial risks to consumers,
merchants, and financial institutions. Credit card fraud not only results in direct financial
losses but also leads to a loss of trust in the security of digital payment systems,
highlighting the urgent need for robust fraud detection mechanisms. Traditional rule-based
systems, which rely on predefined rules to identify suspicious transactions, have shown
limitations in handling the complexity and evolving nature of fraud, underscoring the
necessity for more advanced solutions.
Machine learning has emerged as a promising tool for enhancing the effectiveness of fraud
detection systems. By leveraging large datasets, machine learning models can
automatically identify complex patterns and anomalies within transaction data that indicate
potential fraud. Unlike rule-based approaches, machine learning algorithms can adapt to
new types of fraud, offering a dynamic and scalable solution for real-time fraud detection.
Supervised learning techniques, such as logistic regression, decision trees, and random
forests, have been widely used for fraud detection due to their simplicity and
interpretability. In addition, more complex techniques like deep learning and ensemble
models have demonstrated the potential to improve detection accuracy, particularly in
handling large, unbalanced datasets commonly encountered in credit card transactions.
The challenge of credit card fraud detection lies not only in the diversity and
unpredictability of fraud strategies but also in the highly imbalanced nature of the data,
where fraudulent transactions make up a tiny fraction of all transactions. This imbalance
complicates the training of machine learning models, as they are often biased towards
predicting non-fraudulent outcomes. Consequently, specialized approaches, such as
resampling techniques, synthetic data generation, and cost-sensitive learning, are employed
to ensure that models can accurately detect fraudulent transactions without overwhelming
false positives. Additionally, high false alarm rates in fraud detection systems can lead to
customer dissatisfaction, increased operational costs, and lost revenue opportunities for
businesses, making accuracy and precision critical in model performance.

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 As the digital economy continues to grow, so does the sophistication of fraud techniques.
Fraudsters are constantly evolving their strategies to bypass detection systems, which has
led researchers to explore hybrid and deep learning models that can detect even the most
subtle anomalies in transaction patterns. These models combine the strengths of various
machine learning techniques, allowing for more nuanced detection capabilities. This paper
provides a comprehensive review of both traditional and advanced machine learning
approaches for credit card fraud detection, analyzing their effectiveness and limitations in
real-world applications. By examining the latest advancements in this domain, this study
aims to provide insights into developing more adaptive and efficient fraud detection
frameworks that can keep pace with the constantly evolving landscape of credit card fraud.

1.1 OVERVIEW

Credit card fraud has become one of the most prevalent and challenging issues in the financial
sector, driven by the global expansion of digital commerce and online banking services. As
more transactions shift to online platforms, the threat landscape for credit card fraud grows
increasingly complex. Fraudsters continuously develop new techniques to bypass security
systems, using sophisticated tactics to exploit vulnerabilities within payment systems. This
rapid evolution of fraud tactics has made conventional methods, like rule-based and manual
verification systems, insufficient for effective fraud prevention. The increasing complexity and
volume of credit card transactions call for advanced fraud detection systems that can adapt in
real time and respond to emerging patterns of fraudulent behavior.
Machine learning (ML) has been identified as a powerful solution for addressing the
limitations of traditional fraud detection techniques. ML models can learn from vast amounts
of transaction data, identifying hidden patterns and detecting anomalies that indicate potential
fraud. Unlike static rule-based systems, machine learning models are dynamic and can update
themselves based on new data, making them highly effective at adapting to emerging fraud
tactics. Techniques such as supervised learning, which includes algorithms like logistic
regression, decision trees, and support vector machines, have shown substantial promise in
fraud detection due to their capability to handle large datasets and provide real-time decision-
making support. Additionally, unsupervised learning approaches, which do not rely on labeled

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 data, can help identify outliers and suspicious transactions in scenarios where labeled
fraudulent data may be scarce.

1.2 MOTIVATION

The rapid rise in credit card fraud has not only posed financial risks to individuals and
institutions but has also highlighted vulnerabilities in traditional fraud detection systems. As
digital transactions continue to grow, so does the ingenuity of fraudsters, who constantly adapt
their methods to exploit weaknesses in these systems. This evolving threat demands advanced,
adaptive solutions to protect the financial ecosystem and build customer trust in digital
transactions. Machine learning offers an effective approach to tackling these challenges by
enabling real-time detection of anomalies in complex transaction patterns, minimizing losses,
and reducing the frequency of false alerts. The motivation behind this research lies in the need
to leverage state-of-the-art machine learning and deep learning techniques to create a robust,
reliable fraud detection framework capable of evolving alongside new fraud tactics, ultimately
contributing to safer and more secure payment environments.

1.3 PROBLEM DEFINITION AND OBJECTIVES

With the increasing use of credit cards for digital transactions, the financial sector faces a
growing threat from fraudsters who exploit system vulnerabilities to commit financial crimes.
Traditional rule-based fraud detection systems are proving insufficient, as they struggle to
adapt to the dynamic and unpredictable nature of modern fraud tactics. Additionally,
challenges such as imbalanced datasets, high false positive rates, and data security
requirements create further complexities in effective fraud detection. This research addresses
the need for advanced, scalable fraud detection systems capable of real-time decision-making
to mitigate losses and protect users from fraudulent activities.
Objectives:
1. To study and analyze existing machine learning techniques for credit card fraud detection
and their effectiveness in real-world applications.
2. To implement a comprehensive machine learning framework capable of identifying
fraudulent transactions with high accuracy and minimal false positives.

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 3. To explore deep learning architectures, such as convolutional neural networks (CNNs), for
their potential in improving fraud detection performance.
4. To optimize model parameters for enhancing detection rates and reducing false negatives in
fraud identification.
5. To ensure scalability and real-time adaptability in the proposed system to handle evolving
fraud patterns and increase the overall security of credit card transactions.

1.4 PROJECT SCOPE AND LIMITATIONS

The scope of this project encompasses the development and implementation of a machine
learning-based credit card fraud detection system that can identify fraudulent transactions
in real time. The system will leverage a combination of traditional machine learning
algorithms, such as decision trees and support vector machines, along with advanced deep
learning models like convolutional neural networks (CNNs). By analyzing historical
transaction data, the system aims to detect unusual patterns and anomalies that indicate
potential fraud. This research focuses on optimizing detection accuracy, reducing false
positive rates, and improving adaptability to new fraud tactics, making the system suitable
for deployment in real-world financial environments.
Limitations:
1. Data Imbalance: Fraudulent transactions constitute a small portion of all transactions,
leading to class imbalance, which can challenge the model’s ability to accurately
identify fraud.
2. High False Positive Rate: While reducing fraud, the system may also flag legitimate
transactions as suspicious, causing potential inconvenience to users.
3. Privacy and Security: Handling sensitive transaction and user data requires strict
adherence to data protection and encryption protocols to ensure privacy.
4. Adaptability to Emerging Frauds: While the system aims to be adaptive,
continuously evolving fraud tactics may require regular updates to model parameters
and architecture.
5. Computational Requirements: Deep learning models, in particular, may require
substantial computational resources for training and deployment, potentially limiting
scalability for smaller financial institutions.

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 LITERATURE SURVEY

1. Credit Card Fraud Detection Using Machine Learning Models and Performance
Comparison
Authors: A. Bahnsen, D. Aouada, B. Stojanovic, and B. Ottersten
DOI: 10.1109/ISBI.2014.6784293
This study evaluates several machine learning algorithms, including logistic regression,
decision trees, and random forests, to determine the best model for credit card fraud
detection. The researchers emphasize the importance of handling data imbalance, a
common issue in fraud detection datasets, by using techniques such as cost-sensitive
learning. They highlight that random forests and logistic regression perform effectively in
terms of fraud detection but require careful tuning to avoid overfitting and excessive false
positives. The authors conclude that machine learning methods can significantly improve
fraud detection accuracy compared to traditional rule-based approaches.
2. An Empirical Study on Credit Card Fraud Detection Using Unsupervised Anomaly
Detection Algorithms
Authors: I. Carcillo, Y. Le Borgne, O. Caelen, and G. Bontempi
DOI: 10.1109/BigData.2018.8622202
This paper explores the potential of unsupervised anomaly detection techniques for fraud
detection, specifically using autoencoders and clustering-based methods. With minimal
reliance on labeled data, unsupervised approaches like these can detect patterns in new,
emerging fraud types. The study reveals that although unsupervised methods are useful in
detecting outliers, they often lack the precision needed to handle real-time fraud detection.
The authors discuss the potential for combining unsupervised methods with supervised
learning to enhance detection performance.
3. Detecting Credit Card Fraud Using Random Forests and Support Vector Machines
Authors: S. Srivastava and A. Vatsa
DOI: 10.1016/j.procs.2016.07.057
This research compares the performance of random forest and support vector machine
(SVM) algorithms for detecting fraudulent transactions in highly imbalanced datasets. The
study evaluates how these models handle the skewed distribution of fraud data and assesses
their accuracy, precision, and recall scores. Random forests demonstrated superior

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 performance in terms of adaptability and accuracy, while SVM required additional tuning
and had longer processing times. The authors conclude that ensemble methods, like random
forests, tend to be more robust in handling data imbalance and reducing false positives.
4. A Deep Learning Approach for Credit Card Fraud Detection with Autoencoders
Authors: M. Randhawa, C. Jain, V. Kaur, and R. Singh
DOI: 10.1109/ICACC.2018.8597452
This paper investigates the use of deep learning models, particularly autoencoders, for
credit card fraud detection. Autoencoders are beneficial for feature extraction and can
effectively reduce high-dimensional data into lower dimensions, preserving only essential
features. The authors tested the model on a European credit card dataset and achieved a
notable improvement in fraud detection rates. Despite the increased accuracy, the study
points out the computational intensity and training time required for deep learning methods,
indicating that they may be more suited for systems with advanced hardware resources.
5. Hybrid Machine Learning Approach for Reducing False Alarms in Credit Card
Fraud Detection
Authors: P. Z. Kou, D. K. Ng, M. S. Uddin, and C. W. Sze
DOI: 10.1109/ICCIS.2019.8365438
This study presents a hybrid model combining decision trees and neural networks, aiming
to reduce the false alarm rate while maintaining high detection accuracy. The research
emphasizes the need to balance sensitivity and specificity to avoid false positives that
frustrate customers. The hybrid model leverages decision trees for initial classification,
followed by a neural network to refine the output and eliminate false positives. This layered
approach significantly reduces the false positive rate and improves the user experience,
providing a viable solution for real-world fraud detection systems. The study concludes
with a call for more research into hybrid models that combine the strengths of different
algorithms to optimize fraud detection.

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 SOFTWARE REQUIREMENTS SPECIFICATION

3.1 System Requirements

The system requirements for credit card fraud detection focus on an efficient setup to
support data storage, processing, and model training. Database requirements include a
high-performance database management system like MySQL or PostgreSQL, capable of
handling large-scale transaction datasets with secure, encrypted storage. The database must
be designed for quick access and querying to process real-time transactions. Additionally,
regular backups and a robust disaster recovery plan are essential to ensure data resilience
and protect against potential data loss.
The software stack centers on Python for machine learning model development, utilizing
libraries such as TensorFlow, Keras, and Scikit-Learn. To build an intuitive user interface
for end-users, web development frameworks like Flask or Django will be used, allowing
seamless API integrations. Development tools like Jupyter Notebook and IDEs such as VS
Code will support the coding and testing of algorithms. For data manipulation, analysis,
and visualization, libraries like Pandas and Matplotlib will enable deeper insights into
transaction patterns and fraud detection model performance.

3.1.1 Database Requirements

MySQL Database : It’s an open source SQL database to store all data which
communicates with the application on the server.

3.1.2 Software Requirements

Operating System Windows 10 / 11.

Coding Language Python
Frontend HTML, CSS, JavaScript.
IDE Tool Jupyter Notebook, VS Code, or PyCharm

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3.1.3 Hardware Requirements

System Pentium i3 Processor

Hard Disk 500 GB
Monitor 15’’ LED
Input Devices Keyboard, Mouse
Ram 2 GB

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 SYSTEM DESIGN
4.1 System Architecture

Fig 4.1. System Architecture

The proposed system for credit card fraud detection integrates various stages of data processing,
machine learning modeling, and decision-making components to identify fraudulent transactions.
Below is a detailed step-by-step breakdown of how the system functions:
1. Data Collection and Preprocessing
The first stage of the system involves collecting transaction data from the servers of various banks
or financial institutions. This data includes transaction details such as:
 Transaction amount
 Time of transaction
 Location of the transaction
 Merchant details
 Cardholder information
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  Purchase patterns
The data collected is typically stored in a central database managed by the bank, which will
undergo preprocessing before being used for fraud detection. Preprocessing involves:
 Data Cleaning: Removing any invalid or missing data points.
 Feature Extraction: Extracting relevant features that will help identify fraudulent activity,
such as spending behavior or geographical location discrepancies.
 Normalization: Scaling the features to ensure uniformity, especially when feeding data
into machine learning models.
2. Model Training
The next step involves training a machine learning model on historical transaction data to classify
transactions as legitimate or fraudulent. The proposed system uses a Gradient Boosting Classifier
(GBC), a powerful ensemble learning algorithm known for its ability to handle imbalanced data
effectively.
 Feature Engineering: Key features like the amount of transaction, location, merchant
type, and frequency of purchases are extracted and used as inputs for the model.
 Model Training: The system is trained on a labeled dataset, where each transaction is
already categorized as either fraudulent or legitimate. The GBC model is trained to learn
patterns and correlations from these features.
 Validation and Hyperparameter Tuning: The model is validated using techniques like
cross-validation and further fine-tuned to improve performance by adjusting
hyperparameters like the learning rate, number of estimators, and maximum depth.
3. Fraud Detection in Real-Time Transactions
Once the model is trained, the system is ready to detect fraud in real-time transactions. When a
transaction is initiated, the following steps occur:
 Data Capture: Transaction data is captured in real-time from the user’s card and sent to
the fraud detection system.
 Preprocessing of Incoming Data: Just like the training data, incoming transaction data is
preprocessed (feature extraction, normalization) to match the format expected by the
trained model.
 Prediction: The preprocessed transaction data is fed into the Gradient Boosting model,
which then outputs a probability score indicating the likelihood of the transaction being
fraudulent.

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The model generates two possible outcomes:
 Fraud Detected: If the probability score exceeds a predefined threshold, the system flags
the transaction as potentially fraudulent.
 Fraud Not Detected: If the score is below the threshold, the transaction is considered
legitimate.
4. Decision-Making and Action
Based on the output of the fraud detection model, the system takes action as follows:
 Fraud Detected: If the model identifies a suspicious transaction, it triggers an alert to the
bank’s fraud detection team or automatically freezes the transaction. Additionally, it may
send an alert to the cardholder requesting verification, or it could block the card
temporarily.
 Fraud Not Detected: If the transaction is deemed legitimate, it is allowed to proceed
without interruption.
The decision-making process is designed to minimize false positives (legitimate transactions being
flagged as fraud) and false negatives (fraudulent transactions being missed). The use of balancing
techniques and continuous model tuning ensures that the system remains highly accurate.
5. Post-Detection Actions
In cases of fraud detection, further actions are taken:
 Customer Notification: The customer may be notified via SMS, email, or an app
notification about the suspicious activity.
 Account Freezing: If the fraud is confirmed, the bank may freeze the account and prompt
the customer for additional verification.
 Investigation and Reporting: The fraud detection team initiates an internal investigation
and reports the incident to the necessary authorities if required.
Additionally, any fraud cases detected can be used to update and retrain the model periodically,
thus improving its accuracy over time with newer data.
6. Model Updates and Feedback Loop
The proposed system allows for continuous learning from new fraud patterns. As fraudsters adapt
and develop new techniques, the system evolves by:
 Periodic Retraining: The model is retrained with new transaction data (including fraud
cases detected) to adapt to emerging fraud patterns.

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  Feedback Loop: User feedback on whether transactions were valid or fraudulent helps
improve the dataset for future model training.

4.2 Mathematical Model

Data Collection:
 Step 1: Collect transaction data from the credit card company or bank. This data includes
various features such as:
o Transaction Amount: The monetary value of the transaction.
o Transaction Time: The time at which the transaction was made.
o Location of Transaction: Geographical location or merchant information where
the transaction occurred.
o Merchant Category: Type of merchant where the transaction was made.
o Customer Information: Historical spending patterns of the customer (e.g.,
frequency of similar transactions, typical spending range).
 The transaction data is collected and structured in a tabular format, where each row
represents a transaction and each column represents a feature.
Feature Selection and Transformation:
 Step 2: Select the most relevant features that contribute to detecting fraud. Some features
might be more important than others in identifying fraudulent transactions.
o Example: The transaction amount might be more indicative of fraud than
merchant type, especially if the customer has a history of small purchases.
 Step 3: Normalize or scale the features to ensure that all features have equal importance.
Features like transaction amounts may vary widely, so they are scaled to a similar range to
avoid bias in the model.
Model Choice:
 Step 4: Choose a machine learning model to detect fraud based on the features. Common
algorithms include:
o Logistic Regression
o Random Forest
o Support Vector Machine (SVM)
o Gradient Boosting
o Neural Networks (for more complex patterns)

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  The model is trained using historical transaction data, where the outcome (fraud or
legitimate) is known.
Training the Model:
 Step 5: Train the selected machine learning model using historical data. The training
process involves adjusting the model’s parameters to minimize errors in fraud prediction.
o For example, in Logistic Regression, the algorithm learns the relationship between
the features (like amount, location, and time) and the probability of fraud by
adjusting coefficients that weigh the importance of each feature.
 The training data is usually split into two parts: a training set for building the model and a
validation set for tuning hyperparameters and evaluating the model.
Probability Calculation:
 Step 6: Once trained, the model calculates the probability that a given transaction is
fraudulent, based on the input features.
o The output is a probability score between 0 and 1, where:
 0 means the transaction is likely legitimate.
 1 means the transaction is likely fraudulent.
 Example: A transaction with a score of 0.9 indicates a high likelihood of fraud, while a
score of 0.2 suggests it is legitimate.
Threshold Setting for Decision Making:
 Step 7: Set a threshold to classify transactions as fraudulent or legitimate based on the
probability score.
o Threshold Decision: If the probability score is greater than or equal to a set
threshold (e.g., 0.7), classify the transaction as fraudulent.
o If the score is below the threshold (e.g., 0.7), classify the transaction as legitimate.
 The threshold can be adjusted depending on the balance between false positives (legitimate
transactions flagged as fraud) and false negatives (fraudulent transactions missed by the
model).
Evaluation and Performance Metrics:
 Step 8: Evaluate the performance of the model using various metrics:
o Accuracy: The proportion of correct predictions (both fraudulent and legitimate
transactions).

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 o Precision: The proportion of correctly predicted fraudulent transactions out of all
predicted fraudulent transactions.
o Recall (Sensitivity): The proportion of actual fraudulent transactions detected by
the model.
o F1 Score: The harmonic mean of precision and recall, providing a balance between
the two metrics.
o Area Under the ROC Curve (AUC): Measures the ability of the model to
distinguish between fraudulent and legitimate transactions.
Model Deployment:
 Step 9: Once the model is trained and evaluated, it is deployed in a live environment where
it continuously receives transaction data and predicts whether a transaction is fraudulent or
legitimate in real-time.
 This can be done in the bank’s fraud detection system, where each transaction is analyzed
as it occurs, and immediate actions (such as blocking the card, alerting the user, or
verifying the transaction) are taken based on the model’s prediction.
Feedback and Continuous Improvement:
 Step 10: Monitor the performance of the model over time. If the model detects too many
false positives or misses a significant number of fraudulent transactions, adjustments can be
made by:
o Retraining the model with new data.
o Tuning the threshold to balance false positives and false negatives better.
o Adding new features or modifying existing ones to capture new fraud patterns.
 Continuous feedback helps the system evolve and adapt to new fraud techniques and
transaction patterns.

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4.3 Data Flow Diagram

Fig 4.6 DFD Level 0 & DFD Level 1

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4.4 Entity Relationship Diagram

Fig 4.7 Entity Relationship Diagram

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Fig 4.8 Sequence Diagram

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4.5 Use Case Diagram
A use case diagram at its simplest is a representation of a user's interaction with the system
that shows the relationship between the user and the different use cases in which the user is
involved. A use case diagram can identify the different types of users of a system and the different
use cases and will often be accompanied by other types of diagrams as well. While a use case itself
might drill into a lot of detail about every possibility, a use case diagram can help provide a higher-
level view of the system. It has been said before that "Use case diagrams are the blueprints for
your system". They provide the simplified and graphical representation of what the system must
actually do. Fig 4.6 is the Use case diagram, which tells what a user will do in the proposed work

Fig 4.9 Use Case Diagram

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 PROJECT PLAN

Fig: 5.1 project plan

5.1 Project Estimate

Bohem’s [Boehm 8] COCOMO Model is one of the mostly used models commercially.
The first version of the model delivered in 1981 and COCOMO II is available now. COCOMO’81
is delivered from the analysis of 63 software projects in 1981. Boehm proposed three levels of the
model: Basic, intermediate, detailed.

1. The basic COCOMO’81 model is a singled-valued, static model that computes software
development effort(and cost)as a function of program size expressed in estimated lines of
code(LOC).

2. The intermediate COCOMO’81 model computes software development effort as a function of

program size and a set of ”cost drivers” that include subjective assessments of product, hardware,
personnel, and project attributes.

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3. The detailed COCOMO’81 model incorporates all characteristics of the intermediate version
with an assessment of the cost drivers impact on each step(analysis,design,etc.)of the software
engineering process.
COCOMO’81 model depends on the two main equations: First is development effort(based
on MM - man-month/Person-month/staff-month is one month of effort by one person). In
COCOMO’81, there are 200 hours per Person-Month.According to organization this values may
differ from standard by 10.
MM = aKDSI
Second is effort and development time(TDEV)
T DEV = cMMd
KDSI means the number of thousand delivered source instructions and it is a measure of
size. The coefficients a,b,c and d are depend on the mode of development. There are three modes
of development.
Equations:
E = a(KLOC)b where, a = 3.0,b = 1.12, for semi-detached project.
E = Efforts in person month
D = c(E)d
Number of People :
Equation for calculation of number of people required for completion of project, using the
COCOMO model is:
N=E/D
where, N = Number of people required
E = Efforts in person-month
D = Duration of project in months

5.1.1 Reconciled Estimates

Cost of Project :
Equation for calculation of number of people required for completion of project,
using the COCOMO model is:
N=E/D
where, N = Number of people required
E = Efforts in person-month

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 D = Duration of project in months
Calculation :
Efforts : E = 3.2(0.5)1.05 PM
E = 2.5315 person-months
Total of 8.486 person-months are required to complete the project successfully.
Development Time: D = 3.2(E)1.05 months
D = 3.2(2.5315)1.05 months
D = 8.4 months
Total of 8.4 months are required to complete the project successfully Number of People
Required for the Project:
N = 8.4/4 = 3
N = 3 people
Therefore 3 people are required to successfully complete the project on schedule Cost of Project:
C = 8.4*4*960 = 32256/-
Therefore, the cost of project is 32200/- (approx)
-
5.2 Project Schedule And Team Organization

Developer ID. Developer Name

D1 Tanmay Sayande
D2 Devesh Patil
D3 Durgesh Thakor
D4 Pratik Patil

Table 5.2 List Of Developers

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Table 5.3 List Of Tasks

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Table 5.4 Task Distribution

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 PROJECT IMPLEMENTATION

6.1 Overview of Project Modules

The Credit Card Fraud Detection system is designed to identify and prevent fraudulent
transactions in real-time by using machine learning algorithms. The system is divided into
several key modules that work in sync to provide accurate and efficient fraud detection.
The primary modules in the system include Data Collection and Preprocessing, Feature
Selection and Transformation, Model Training and Evaluation, Fraud Detection and
Decision Making, and System Monitoring and Feedback Loop.
1. Data Collection and Preprocessing: This is the first and crucial step in the fraud
detection process. The system collects transaction data from various sources, such as
the credit card network and financial institutions. The data typically includes
transaction details such as the transaction amount, time, location, merchant information,
and customer behavior patterns. The data is cleaned and preprocessed to remove noise,
handle missing values, and scale the features to make them suitable for machine
learning algorithms. Proper data preprocessing ensures the model performs well and
does not produce biased results.
2. Feature Selection and Transformation: In this module, relevant features are selected
based on their importance in identifying fraudulent transactions. For example, features
such as transaction amount, frequency, merchant type, and location are crucial for
detecting anomalies. The features are transformed using normalization or scaling
techniques to bring them within a comparable range. This step ensures that no one
feature dominates the model and that all features contribute equally to the prediction.
3. Model Training and Evaluation: This module involves training the selected machine
learning model using historical transaction data. The model can be a classification
algorithm such as Logistic Regression, Random Forest, or Neural Networks. The model
learns patterns from the data to distinguish between fraudulent and legitimate
transactions. After training, the model's performance is evaluated using various metrics,
including accuracy, precision, recall, and the F1 score. A well-trained model ensures

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 that the fraud detection system can accurately predict fraud without generating too
many false positives.
4. Fraud Detection and Decision Making: In this module, the trained model is used to
predict the likelihood of a transaction being fraudulent based on real-time input data.
Each transaction is assigned a probability score indicating the likelihood of fraud. If the
score exceeds a predefined threshold, the system flags the transaction as potentially
fraudulent and triggers an appropriate action, such as blocking the card, alerting the
user, or requiring further verification. The decision-making process is fast and
automated, ensuring that fraudulent transactions are caught in real-time without
disrupting legitimate transactions.
5. System Monitoring and Feedback Loop: Once the system is deployed, continuous
monitoring is essential to ensure its performance remains optimal. This module tracks
the performance of the model, detecting any shifts in fraud patterns over time. The
system can adapt to new fraud trends by incorporating feedback from the detection
process, allowing the model to be retrained periodically. This ongoing feedback loop
ensures that the system remains effective as fraud tactics evolve.

6.2 Algorithm Details

In the proposed Credit Card Fraud Detection system, several machine learning and deep learning
algorithms can be used to classify transactions as either fraudulent or legitimate. Below is an
overview of the most commonly used algorithms in this context, with a focus on their suitability
for detecting fraudulent transactions:
1. Logistic Regression
 Overview: Logistic Regression is one of the simplest machine learning algorithms used for
binary classification problems, such as fraud detection. It models the relationship between
the dependent binary variable (fraud or non-fraud) and independent variables (transaction
details such as amount, merchant, and location) using a logistic function.
 Working: The algorithm uses a linear equation to predict the probability that a given
transaction is fraudulent. If the probability exceeds a predefined threshold, the transaction
is classified as fraudulent.
 Pros: It is computationally efficient, interpretable, and works well with linearly separable
data.

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  Cons: It may struggle with complex, non-linear relationships in the data.
2. Random Forest
 Overview: Random Forest is an ensemble learning technique that creates a multitude of
decision trees to perform classification. Each tree in the forest gives a prediction, and the
final prediction is based on the majority voting or averaging of all trees.
 Working: The algorithm builds multiple decision trees using randomly selected subsets of
features and training data. Each tree is trained independently, and their predictions are
aggregated for the final output.
 Pros: It handles large datasets well, is robust against overfitting, and can capture complex
relationships in the data.
 Cons: It is computationally expensive, especially with large datasets.
3. Support Vector Machine (SVM)
 Overview: Support Vector Machine is a supervised machine learning algorithm that works
by finding the hyperplane that best separates data into two classes. For fraud detection, it
finds the decision boundary between fraudulent and legitimate transactions.
 Working: SVM transforms the data into a higher-dimensional space where a linear
decision boundary can separate fraudulent and non-fraudulent transactions. It uses a kernel
trick to handle non-linearly separable data.
 Pros: It performs well with high-dimensional data and can work with complex and non-
linear decision boundaries.
 Cons: SVMs can be computationally intensive and require careful tuning of
hyperparameters.
4. Gradient Boosting Classifier
 Overview: Gradient Boosting is an ensemble learning technique that builds a strong
classifier by combining multiple weak classifiers (typically decision trees). It works by
training each new model to correct the errors of the previous ones.
 Working: In the context of fraud detection, Gradient Boosting creates a series of decision
trees, where each tree focuses on the errors made by the previous tree. The predictions of
the individual trees are combined to form a final output.
 Pros: It often provides high accuracy and performs well even with unbalanced datasets.
 Cons: It can be prone to overfitting if not tuned properly and may require significant
computational resources.

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5. Convolutional Neural Networks (CNN)
 Overview: Convolutional Neural Networks are primarily used in image processing but can
be adapted for fraud detection. CNNs automatically extract features from input data
through convolutional layers and pooling, and then use fully connected layers for
classification.
 Working: For fraud detection, CNNs can be applied to transaction data in a way similar to
time-series analysis or image classification. The network learns to recognize patterns in the
transaction sequence, such as unusual spending behavior or transaction patterns.
 Pros: CNNs are highly efficient in identifying complex, non-linear patterns in large
datasets.
 Cons: They require a large amount of labeled data and are computationally intensive.
6. Deep Neural Networks (DNN)
 Overview: A Deep Neural Network consists of multiple layers of interconnected neurons
that can model complex patterns in data. It is particularly useful when the dataset has a high
number of features and a complex relationship between them.
 Working: In the context of fraud detection, DNNs learn from historical transaction data to
predict whether a transaction is legitimate or fraudulent. The model is trained on features
such as transaction amount, user behavior, and merchant information.
 Pros: DNNs can learn very complex patterns and are highly flexible.
 Cons: They require large datasets and significant computational power, and they are harder
to interpret.
7. K-Nearest Neighbors (KNN)
 Overview: K-Nearest Neighbors is a non-parametric algorithm that classifies a transaction
based on its proximity to other labeled transactions in the feature space. The algorithm
looks at the 'K' closest training examples and assigns the majority class as the label.
 Working: In fraud detection, KNN classifies new transactions by finding the closest
historical transactions in the feature space and deciding whether the transaction is
fraudulent or legitimate.
 Pros: It is simple and effective for small datasets, and there is no need for a training phase.
 Cons: KNN is computationally expensive when dealing with large datasets and might not
work well with high-dimensional data.

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8. XGBoost (Extreme Gradient Boosting)
 Overview: XGBoost is an optimized implementation of Gradient Boosting that aims to be
faster and more efficient. It is widely used for classification tasks, including fraud
detection.
 Working: XGBoost builds multiple decision trees sequentially, each one attempting to
correct the errors of the previous one. It also uses regularization techniques to prevent
overfitting.
 Pros: It is highly efficient, handles large datasets well, and provides high predictive
accuracy.
 Cons: XGBoost can be computationally expensive and requires fine-tuning of parameters.

6.3 Implementation Overview

Fig 6.1 Implementation Overview

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 CONCLUSION

Credit card fraud detection is a critical area in financial systems that requires effective
solutions to minimize losses and protect customers from fraudulent activities. The
advancement of machine learning techniques has significantly improved the accuracy and
efficiency of fraud detection systems. By leveraging algorithms such as Logistic
Regression, Random Forest, Support Vector Machine, and deep learning models like CNNs
and DNNs, financial institutions can develop systems that not only detect fraud in real-time
but also reduce false positives, thus ensuring a better customer experience.
The proposed system using machine learning models, including both traditional algorithms
and deep learning techniques, offers a robust solution to credit card fraud detection. The
integration of various algorithms ensures that the system is capable of handling complex
patterns and subtle anomalies in transaction data. By analyzing key factors such as
transaction amount, frequency, location, and merchant type, the model can accurately
identify fraudulent transactions while minimizing the chances of overlooking legitimate
ones.
Despite the promising results, there remain challenges such as dealing with imbalanced
datasets, ensuring data privacy, and adapting to evolving fraud patterns. Future
improvements can focus on optimizing existing models, incorporating more diverse
features, and utilizing real-time data processing to enhance the system’s performance. In
conclusion, with ongoing advancements in machine learning, credit card fraud detection
systems are becoming increasingly sophisticated, providing a safer and more reliable
environment for consumers and financial institutions alike.

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 FUTURE SCOPE

The future scope of credit card fraud detection lies in the continuous enhancement of machine
learning and deep learning models to keep up with evolving fraud techniques. With advancements
in AI, the integration of real-time transaction monitoring, dynamic fraud pattern recognition, and
personalized detection models can further improve accuracy and reduce false positives.
Additionally, the use of advanced techniques like federated learning can enable secure model
training across decentralized data sources while maintaining privacy. Incorporating multi-factor
authentication, biometric data, and blockchain technology can also contribute to more robust,
tamper-proof fraud prevention systems. The ongoing research and development in these areas hold
great potential for creating even more efficient and secure credit card fraud detection solutions.

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