November 30, 2023
6:41 am

Machine Learning the Best Solution for Fraud Prevention

Fraud has long been a serious problem in a variety of industries, including banking, healthcare, insurance, and many more. Fraudulent activities have surged in parallel with the rise in online transactions made possible by various payment methods like credit/debit cards, PhonePe, Gpay, Paytm, etc. Thieves and scammers have enhanced their skills in identifying ways to steal more. Efficient fraud detection is essential if your company processes sensitive data or conducts any online transactions. It’s possible that you’ve questioned how to spot and stop fraudsters without upsetting your real customers. Conventional methods like WAFs and segmented CAPTCHAs are no longer effective against advanced attackers. Fortunately, developments in data science, machine learning (ML), and artificial intelligence (AI) are propelling the evolution of fraud detection software.

The blog explores the advantages and operational methods of ML in fraud detection for companies. Let’s analyze this.

Why Do We Use Machine Learning for Fraud Detection?

Machine learning techniques, popular for their efficiency, are extensively employed across industries to detect fraud.

Speed:

The quick calculation of machine learning makes it a popular tool.
The process involves the processing, analysis, and discovery of new patterns in data.
Humans struggle with data analysis, and the more data there is, the longer it takes.
Rule-based fraud prevention systems utilize written rules to define acceptable acts and those that require red flags.
Currently, the inefficiency of this rule-based approach stems from the time it takes to construct these rules for various instances.
Fraud Detection algorithms based on ML are capable of automatically identifying new trends and learning from existing ones, effectively performing all these tasks.

Scalability:

The ML-based model improves in accuracy and predictability as it receives an increasing amount of data.
Rule-based systems necessitate manual rule-setting by experts to accommodate diverse scenarios; they don’t evolve independently.
To ensure the proper functioning of ML algorithms, a dedicated group of data science experts is necessary.

Efficiency:

Machine learning algorithms carry out the repeated work of analyzing data and looking for hidden patterns.
Their effectiveness in producing outcomes surpasses that of manual labour. Its effectiveness is based on its ability to prevent false positives.
The Fraud detection experts could now concentrate on more sophisticated and complicated patterns, leaving the low- to moderate-level issues to these Machine Learning-based algorithms, thanks to their effectiveness in identifying these patterns.

How Does a Machine Learning System Work?

Data Feeding:

The model is first fed with the data.
A model’s accuracy is directly related to the amount of data employed, with more data indicating greater performance.
To identify unique scams within an industry, it is crucial to continually update your model with more data.
The training process will ensure your model accurately detects unique fraud activity within your company.

Extracting Features:

The method of feature extraction essentially involves gathering data from each and every thread connected to a transaction process.
The transaction’s location, the customer’s identity, the payment method, and the network used can all be examples of these.

Identity:

When a customer applies for a loan, this parameter, together with their email address and mobile number, can be used to verify their bank account’s credit score.

Also Read: Why Use Python for Artificial Intelligence and Machine Learning?

Location:

It verifies the customer’s IP address, shipping address, and fraud rates at those addresses.

Mode of Payment:

The cards used for the transaction, the cardholder’s name, cards from other countries, and the bank account’s fraud rate are all verified.

Network:

The count indicates the number of emails and mobile numbers used for network transactions.

Training the Algorithm:

A fraud detection system must be trained using customer data to distinguish between fraudulent and genuine transactions.

Creating Model:

You can use your trained fraud detection algorithm to create a model that can distinguish between “fraudulent” and “non-fraudulent” transactions in your company.
Machine learning is best for fraud prevention.

What is Fraud Detection Machine Learning?

Machine learning is being utilized more and more in fraud detection for online services, apps, governments, and e-commerce companies to identify and stop complex, frequently automated attacks that could harm your infrastructure and steal your money, commodities, and data.

In today’s volatile cybersecurity market, machine learning is a critical adaption for fraud detection.

Machine learning detection outperforms human intervention in identifying patterns and establishing risk management rules. With machine learning (ML), users can effectively combat evolving online threats and get a significant edge over fraudulent card transactions, fraudulent account creation, account takeovers (ATOs), and credential stuffing.

Machine Learning Vs Traditional Fraud Detection

Cybercriminals consistently devise innovative methods of fraud, often employing automated technologies like artificial intelligence. It only takes minutes to construct an army of bots and begin fresh attacks.

Traditional Fraud Detection Limitations:

Attacks are based on specific rules, which become obsolete as technology and techniques evolve. Bad actors aim to achieve goals with minimal effort, avoiding resource waste.

Conventional systems depend greatly on human input, given the knowledge, time, and effort demanded by developers. Over time, manual systems may become increasingly challenging, making it nearly impossible for new users to learn how to use them.

Machine learning is a powerful tool for fraud detection, effectively resolving these issues. With ML, decisions may be made more quickly, accurately, and economically. New data is automatically processed, and detection models are updated in real-time, all without the need for human oversight.

Machine learning algorithms improve accuracy and intelligence with more data, surpassing the capabilities of the human brain.

Types of Machine Learning –

A data scientist’s algorithm selection is influenced by the desired purpose and the data to be used.

Supervised Learning:

This employs supervised learning, providing algorithms with labelled training to evaluate correlations.
In this type of machine learning, data scientists give algorithms labelled training data and specify the variables.

Unsupervised Learning:

This type of ML employs algorithms trained on unlabeled data.
These algorithms search through databases in search of significant relationships.
The algorithms are trained using pre-managed data, resulting in well-structured forecasts or suggestions.

Semi-supervised Learning:

This method assists in incorporating a combination of the two previous methods of machine learning.
Data scientists can feed an algorithm with mostly labelled training data, allowing the model to explore and expand its understanding of the data set.

Reinforcement of Learning:

The “wait and watch” method is a common method for completing a multi-step procedure that clearly defines regulations.