Class balancing framework for credit card fraud detection based on clustering and similarity-based selection (SBS).

Abstract

Credit card fraud is a growing problem nowadays and it has escalated during COVID-19 due to the authorities in many countries requiring people to use cashless transactions. Every year, billions of Euros are lost due to credit card fraud transactions, therefore, fraud detection systems are essential for financial institutions. As the classes’ distribution is not equally represented in the credit card dataset, the machine learning trains the model according to the majority class which leads to inaccurate fraud predictions. For that, in this research, we mainly focus on processing unbalanced data by using an under-sampling technique to get more accurate and better results with different machine learning algorithms. We propose a framework that is based on clustering the dataset using fuzzy C-means and selecting similar fraud and normal instances that have the same features, which guarantees the integrity between the data features.