Risk Analysis in Electronic Payments and Settlement System Using Dimensionality Reduction Techniques

Abstract

Credit risk analysis forms an important criterion for the endurance of the banking sector. Understanding credit liability of customer enhances the security stability of the banker. This research is aimed at comparing the predictive accuracy of data mining techniques with feature selection and extraction techniques in the default of credit card clients and suggesting the most efficient technique for analyzing credit card default. Customer's default payments in Taiwan were used as the dataset. Machine Learning classification algorithms like K-nearest neighbor(KNN), Naive Bayesian(NB), Decision Tree(DT) and Support Vector Machines(SVM) were applied to the dataset. Feature filter methods like information gain (IG), gain ratio (GR) and chi-square (CS) and Wrapper based methods like Best First search(BFS) and Hill Climbing search (HCS) were used to identify minimum features required. Feature extraction methods such as Principal Component Analysis(PCA) and Linear Discriminant Anal-ysis(LDA) were also applied. The minimum features of feature selection algorithms along with PCA and LDA were then applied to Base classifiers and their accuracies were tabulated and compared. SVM with feature selection and extraction techniques had the best predictive accuracy.