Fraud any act of deception carried out for the purpose of unfair, undeserved and/or unlawful gain. Fraud is an adaptive crime, so it needs special methods of intelligent data analysis to detect and prevent it. Also Fraud can be defined as wrongful or criminal deception intented to result in financial or personal gain (Hobson, 2004).
With the developments in the Information Technology and improvements in the communication channels, fraud is spreading all over the World with results of huge financial losses.
The most known types of frauds are ;
- Card fraud
- Insurance claim fraud
- Money laundering
- Computer and Internet fraud
- Telecommunication fraud
Fraud is an adaptive crime, so it needs special methods of intelligent data analysis to detect and prevent it. There are two main mechanisms to avoid fraud and losses due to fraudulent activities; fraud prevention systems and fraud detection systems.
Fraud prevention describes measures to stop fraud from occuring in the first place. It is the proactive mechanism with the goal of disabling the occurrence of fraud. Personal identification numbers for bank cards, Subscriber Identity Module (SIM) cards for mobile phones, passwords on computer systems and chip & pin applications can be given as examples for fraud prevention systems.
Fraud detection involves identifying fraud as quickly as possible once it has been perpetrated. The goal of fraud detection systems is to check every transaction for the possibility of being fraudulent regardless of the prevention mechanisms, and to identify fraudulent ones as quickly as possible once the fraudster began to perpetrate a fraudulent transaction.
Most of techniques used in fraud detection rely on data mining and machine learning.
Data mining is to classify,cluster, segment the data, automatically find associations and rules in the data that may signify interesting patterns, including those related to fraud.
Machine learning is to automatically identify characteristics of fraud.
Technology is an important tool to help companies fight fraud, but many are not succeeding in using data analytics as a primary tool for fraud detection. Meanwhile, fraudsters are leveraging technology to perpetrate fraud.