Theoretical and Applied Economics
No. 4 / 2021 (629), Winter
Hidden Markov Model using transaction patterns for ATM card fraud detection
University of Lagos, Nigeria
A.A. AKINSETE
Marshall University, USA
Abstract. ATM card fraud is causing millions of naira in losses for the card payment business. The most accepted payment mode in today’s world is ATM card for online and regular purchasing; hence frauds related with it are also increasing. To find the fraudulent transaction, this study proposes a hidden Markov Model (HMM) based on the Poisson distribution (HMM[Pois]), the generalized Poisson distribution (HMM[GenPois]), and the Gaussian distribution (HMM[Gauss]) with the forward-backward algorithm which detects the fraud by using customers spending behavior. The proposed estimation procedure based upon the three distributions for the HMM model is used to construct a sequence of operations in ATM card transaction processing, and detect fraud by studying the normal spending behavior of a cardholder, followed by checking an incoming transaction against spending behavior of the cardholder. If the transaction satisfies a predefined threshold value, then the transaction is decided to be legitimate else, the transaction is declared as fraudulent. The evaluation statistics used shows that the HMM[Gauss] is the most appropriate model in detecting ATM card fraudulent transactions.
Contents
The pandemic crisis – A new factor to slow down the expansion of the Eurozone
Revealing the effects of competitiveness and innovation on economic growth: Evidence from European leading and following countries
Public service delivery dilemma and economic growth challenges in the MENA Region
Hidden Markov Model using transaction patterns for ATM card fraud detection
Productivity growth in Chinese cities: The agglomeration effect for cross-regional industrial structures
Time-varying volatility spillover of foreign exchange rate in three Asian markets: Based on DCC-GARCH approach
Non-linear effect of public debt on economic growth: The case of Tunisia
Application of single Sharpe index on the optimal portfolio construction using Indian blue-chip stocks
Budget policy, economic cycle and debt in the West African Economic and Monetary Union (WAEMU) countries: Empirical evidence based on a regime change model
The impact of government spending on the economic growth of a sample of developing countries using panel data
The evolution of consumer prices – the main brake on economic growth
Analysis of income inequalities in the pre-pandemic COVID-19 period