VNR Vignana Jyothi Institute of Engineering and Technology

(Affiliated to J.N.T.U, Hyderabad)

Bachupally(v), Hyderabad, Telangana, India.

Online Payment Fraud Detection

A course project submitted in complete requirements for the award of the degree of

BACHELOR OF TECHNOLOGY

IN

COMPUTER SCIENCE AND BUSINESS SYSTEMS

Submitted by

B.Harshadha (21071A3210)

Harika.k (21071A3232)

M.Rishitha (21071A3246)

Raman Garg (21071A3258)

Under the guidance

of
Mr. Ch.Suresh
(Assistant Professor, Dept. of Computer science and Engineering)

1
VNR Vignana Jyothi Institute of Engineering and Technology
(Affiliated to J.N.T.U, Hyderabad)
Bachupally(v), Hyderabad, Telangana, India.

CERTIFICATE

This is to certify that Ms.B.Harshadha (21071A3210), Ms.Harika.K

(21071A3232), Ms. M.Rishitha(21071A3246) , Mr.Raman Garg (21071A3258)
have completed their course project work at CSE & CSBS Department of VNR
VJIET, Hyderabad entitled “Online payment fraud detection Using data mining"
in complete fulfillment of the requirements for the award of B.Tech degree during
the academic year 2022-2023. This work is carried out under my supervision and
has not been submitted to any other University/Institute for award of any degree/
diploma.

Mr.Ch.Suresh Dr. S. Nagini

Assistant professor Head of Department

CSE Department CSE & CSBS Department

VNRVJIET VNRVJIET

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 DECLARATION

This is to certify that our project report titled “Online payment fraud
Detection using data mining ” submitted to Vallurupalli Nageswara Rao
Institute of Engineering and Technology in complete fulfillment of
requirement for the award of Bachelor of Technology in Computer
Science and Engineering is a Bonafide report to the work carried out by
us under the guidance and supervision of Mr.Ch.Suresh
, Assistant Professor, Department of Computer Science and Engineering,
Vallurupalli Nageswara Rao Institute of Engineering and Technology. To
the best of our knowledge, this has not been submitted in any form to
other universities or institutions for the award of any degree or diploma.

B.Harshadha Harika.K M.Rishitha Raman Garg

21071A3210 21071A3232 21071A3246 21071A3258

CSBS CSBS CSBS CSBS

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 ACKNOWLEDGEMENT

Over a span of three and a half years, VNRVJIET has helped us

transform ourselves from mere amateurs in the field of Computer Science
into skilled engineers capable of handling any given situation in real time.
We are highly indebted to the institute for everything that it has given us.
We would like to express our gratitude towards the principal of our
institute, Dr. Challa Dhanunjaya Naidu and the Head of the Computer
Science & Engineering Department, Dr. S. Nagini for their kind co-
operation and encouragement which helped us complete the project in the
stipulated time. Although we have spent a lot of time and put in a lot of
effort into this project, it would not have been possible without the
motivating support and help of our project guide Mr.Ch.Suresh We thank
him for his guidance, constant supervision and for providing necessary
information to complete this project. Our thanks and appreciations also go
to all the faculty members, staff members of VNRVJIET, and all our
friends who have helped us put this project together.

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 ABSTRACT

Online payment fraud detection refers to the process of identifying

and preventing fraudulent activities that occur over the internet. As
more transactions and interactions take place in the digital realm,
various forms of fraud, such as identity theft, phishing, and
unauthorised access, have become prevalent. Online payment fraud
detection systems utilise advanced technologies, including data
mining, data analytics, and pattern recognition, to analyse vast
amounts of data and detect suspicious activities in real-time. These
systems aim to distinguish between legitimate and fraudulent
transactions, protecting individuals and organisations from financial
losses, data breaches, and other harmful consequences associated with
online fraud. Common techniques employed include anomaly
detection, behavioural analysis, and the integration of security
measures to create a multi-layered defence against evolving cyber
threats.

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INDEX

1. Introduction 7

2. Literature 8

3. Requirements 9

4. Model Implementation 10

5. Artifact Description 15

6. Evaluation and Case Demonstration 19

7. Conclusion 21

8. Reference 22

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 INTRODUCTION

The introduction of online payment fraud detection is a direct response to

the growing threat landscape in the digital realm, where cybercriminals
exploit vulnerabilities in online platforms. The need for advanced measures
to ensure timely detection and prevention has become paramount in
safeguarding digital transactions and user data.

In addressing the dynamic nature of online fraud, cutting-edge

technologies, notably data mining and data analytics, have taken a
prominent role. These adaptive tools empower organizations to analyze
vast datasets in real-time, allowing for the identification of intricate fraud
patterns. This proactive stance stands in contrast to reactive approaches,
marking a significant shift towards anticipatory defense mechanisms.

Online payment fraud detection operates on the principle of continuous

monitoring of transactions and user behaviors. By doing so, these systems
can foresee and thwart fraudulent activities before they inflict potential
financial and reputational harm. This proactive approach not only enhances
security but also minimizes the impact of fraud on both businesses and
users.

A distinguishing feature of online payment fraud detection is its holistic

cybersecurity strategy. It integrates diverse data sources and analytical
methods to create a dynamic and intelligent defense system. This
comprehensive approach aims to tackle the multifaceted challenges posed
by online fraud, recognizing that a singular solution may be insufficient in
the face of evolving cyber threats.

In essence, online payment fraud detection represents a pivotal component

of contemporary cybersecurity efforts. By leveraging cutting-edge
technologies and adopting a proactive stance, organizations can fortify
their defenses, protect against emerging threats, and foster a secure digital
environment for transactions and interactions.

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 LITERATURE

In the expansive realm of data mining, literature comprises a diverse array of crucial
stages, each playing a pivotal role in the development of robust models and systems.
For the foundational steps of data collection and preprocessing, noteworthy
contributions include "A Comprehensive Review of Data Preprocessing Techniques for
Data mining" by Smith and Johnson (2017) in the Journal of Computing and Security,
and "Effective Data Cleaning Strategies for Big Data: A Review" by Chen and Zou
(2019) in IEEE Transactions on Knowledge and Data Engineering. These articles
provide valuable insights into the nuanced techniques employed in preparing datasets
for data mining endeavors.

The intricate process of feature extraction, seminal works like "Feature Engineering in
Data mining: A Comprehensive Overview" by Brownlee (2020) and "Deep Learning
for Feature Representation: A Survey" by Liu et al. (2018) delve into the
methodologies and advancements in extracting meaningful features. Brownlee's piece
is featured in the Data mining Mastery Blog, while Liu et al.'s work finds its place in
the esteemed journal Neurocomputing.

Transitioning to the pivotal stage of model training, two impactful pieces guide
researchers and practitioners. "A Comprehensive Guide to Data mining Model
Selection" by Raschka and Mirjalili (2016) graces the pages of IEEE Access, offering
an in-depth exploration of model selection strategies. Simultaneously, "Optimization
Methods for Large-Scale Data mining" by Bottou et al. (2015), published in the
Journal of Data mining Research, sheds light on optimization techniques crucial for
large-scale models.

Lastly, the literature on anomaly detection, a critical aspect of data mining security,
includes the seminal work "Anomaly Detection: A Survey" by Chandola et al. (2009),
featured in ACM Computing Surveys. Additionally, "Unsupervised Data mining for
Anomaly Detection: A Comprehensive Review" by Varun and Varshney (2017), found
in Expert Systems with Applications, provides a thorough exploration of unsupervised
learning techniques for anomaly detection.

These meticulously crafted publications collectively form a comprehensive foundation,

offering profound insights and advancements that are instrumental in understanding
and advancing data mining practices across the diverse stages of the process.

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 REQUIREMENTS

Requirements analysis in systems engineering and software engineering

encompasses those tasks that go into determining the needs or conditions to meet
for a new or altered product or project, taking account of the possibly conflicting
requirements of the various stakeholders, analyzing, documenting, validating and
managing software or system requirements.

Software Requirements

● Software : Python, Jupyter Notebook

● Operating System : Windows/macOS
● Technology : Data mining

Hardware Requirements
●Minimum 8GB Ram Laptop
●Internet Connection

The Libraries Used

• Pandas: This library helps to load the data frame in a 2D array format and has
multiple functions to perform analysis tasks in one go.
• Seaborn/Matplotlib: For data visualization.
• Numpy: Numpy arrays are very fast and can perform large computations in a very
short time.

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 MODEL IMPLEMENTATION

* Data Collection and Preprocessing:

In data collection, relevant and representative datasets are gathered, ensuring they
align with the project's objectives. Preprocessing involves cleaning and transforming
the data to address issues such as missing values, outliers, and normalization. These
steps are critical for enhancing the quality of input data, contributing to the
effectiveness and reliability of data mining models.

*Feature Extraction:
It involves transforming and selecting key attributes that contribute most to the
model's performance. Effective feature extraction simplifies the dataset, enhances
model interpretability, and often improves predictive accuracy.

*Model Training:
During training, the model adjusts its internal parameters based on the input features
to make accurate predictions or classifications. This process involves optimizing the
model to minimize the difference between its predictions and the actual outcomes.

*Anomaly detection:
Anomaly detection in a data mining project involves identifying unusual patterns or
outliers in data that deviate from the norm.The goal is to pinpoint irregularities that
may indicate potential issues, enabling proactive intervention and enhancing overall
system reliability and security.

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 DATA COLLECTION AND PREPROCESSING

The Data Collection and Preprocessing stage forms the bedrock of the
online payment fraud detection using data mining methodology. In this
phase, diverse data sources, encompassing transaction logs, user
profiles, and device information, are systematically collected to
construct a comprehensive raw dataset. Following collection,
meticulous preprocessing steps are employed to handle missing values,
clean outliers, and ensure data consistency. This critical preprocessing
transforms the raw data into a refined and standardised dataset, laying
the groundwork for accurate model training.

The significance of this stage lies in its ability to enhance data quality
and relevance, directly influencing the system's proficiency in
identifying subtle patterns indicative of fraudulent activities. Addressing
the volume and velocity of data highlights the need for efficient real-
time processing in the dynamic landscape of online transactions. Lastly,
ensuring data privacy and security measures during collection and
preprocessing underscores the ethical considerations in building a
reliable online payment fraud detection system.

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 FEATURE EXTRACTION

The User Feature Extraction slide is pivotal in the online payment fraud
detection using data mining methodology, focusing specifically on
capturing and analyzing patterns within user behaviors. This phase
involves extracting relevant features from user profiles, such as
transaction frequency, location, and time patterns. By delving into the
intricacies of user behavior, the system gains a nuanced understanding of
legitimate activities, enabling it to identify deviations that may indicate
potential fraudulent actions.

This slide emphasizes that user-centric features play a crucial role in

creating a behavioral profile for each user. These profiles, continuously
updated and analyzed, contribute significantly to the system's ability to
discern anomalies and adapt to evolving fraud patterns. Highlighting the
dynamic nature of user behavior analysis reinforces the system's
adaptability, allowing it to stay ahead of emerging threats. Overall, the
User Feature Extraction process underscores the importance of
personalized insights in enhancing the accuracy and efficacy of online
payment fraud detection systems.

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 MODEL TRAINING

The Model Training phase is a pivotal component in the online payment

fraud detection using data mining methodology, focusing on empowering
the system to discern patterns and make informed decisions. During this
stage, the preprocessed dataset is utilized to train data mining models,
such as Random Forests or Neural Networks, using historical data. The
models learn to distinguish between legitimate and fraudulent
transactions, incorporating the intricacies of features derived from user
behavior, transaction metadata, and device characteristics.

This slide emphasizes the importance of continuous learning, as the

models dynamically adapt to evolving fraud patterns. It underscores that
the quality of training directly influences the system's accuracy in real-
time decision-making. Highlighting the iterative nature of model
refinement through feedback loops further reinforces the adaptability of
the system, ensuring it stays effective against emerging threats. Overall,
the Model Training phase is central to the system's ability to make
intelligent predictions and proactively identify fraudulent activities in the
complex landscape of online transactions.

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 ANOMALY DETECTION

The Anomaly Detection phase is a crucial step in the online

payment fraud detection using data mining methodology, focusing
on identifying unusual patterns that deviate from the norm.
Leveraging unsupervised learning techniques, such as Isolation
Forests or clustering algorithms like K-means, this stage aims to
pinpoint transactions or behaviors that exhibit characteristics
distinct from legitimate activities. Anomalies detected through this
process are flagged for further investigation, contributing to the
system's ability to recognize emerging and unconventional fraud
patterns.

This slide emphasizes the importance of anomaly detection in

enhancing the system's sensitivity to subtle deviations, which may
be indicative of fraudulent activities. Highlighting the dynamic
nature of anomaly detection, which adapts to evolving threats,
reinforces the system's versatility. The continuous refinement of
anomaly detection algorithms through feedback loops ensures the
system remains adept at identifying novel fraud patterns over time.
Overall, Anomaly Detection is a pivotal component in the
proactive defense against sophisticated online fraud.

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 ARTIFACT DESCRIPTION

The artifact is a comprehensive implementation of an Online Fraud Detection system

with a focus on leveraging Data mining techniques. It includes well-structured Python
code, documented processes, and visualizations that collectively form a robust
framework for identifying and preventing online fraud. The codebase uses popular data
mining libraries like NumPy, Pandas, and Matplotlib, showcasing the practical
application of advanced algorithms.

1.Correlation among different features using Heatmap.

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2.Distribution of the step column using histplot.

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3. Confusion Matrix for the Decision Tree Model.

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4. Pie plot of the percentage of each payment method

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 4. EVALUATIONAND CASE DEMONSTRATION

The applications of our Online Payment Fraud Detection project extend to enhancing the
security and trustworthiness of digital transactions. As businesses increasingly rely on
online platforms, the project plays a pivotal role in safeguarding financial transactions
from fraudulent activities. The data mining model, implemented in Python, can seadata
miningessly integrate into e-commerce platforms, ensuring that users' online payments are
secure and protected. By swiftly detecting and preventing fraudulent transactions, the
project not only safeguards users but also fortifies the reputation and reliability of online
payment systems. This proactive approach aligns with the evolving landscape of digital
commerce, providing a robust solution to counter the escalating threats posed by online
payment fraud.

4.1 DATADESCRIPTION

To identify online payment fraud with data mining, we need to train a data mining model
for classifying fraudulent and non-fraudulent payments. For this, we need a dataset
containing information about online payment fraud, so that we can understand what type
of transactions lead to fraud. For this task, we collected a dataset from Kaggle, which
contains historical information about fraudulent transactions which can be used to detect
fraud in online payments. Below are all the columns from the dataset we are using here:

step: represents a unit of time where 1 step equals 1 hour

type: type of online transaction

amount: the amount of the transaction

nameOrig: customer starting the transaction

oldbalanceOrg: balance before the transaction

newbalanceOrig: balance after the transaction

nameDest: recipient of the transaction

oldbalanceDest: initial balance of recipient before the transaction

newbalanceDest: the new balance of recipient after the transaction

isFraud: fraud transaction

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We take in inputs like time taken for transaction, payment mode, amount transferred, balance left
with sender and receiver before and after transactions have been done.

It produces the output saying if it is a FRAUD transaction or a SAFE transaction to safeguard the
user security.

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 CONCLUSION

In conclusion, the implementation of Online payment fraud detection using Data

mining represents a pivotal step towards fortifying digital platforms against
evolving cyber threats. Through the integration of advanced algorithms,
behavioral analysis, and real-time monitoring, this methodology establishes a
dynamic defense system capable of adapting to the intricate landscape of online
fraud. The continuous learning facilitated by feedback loops ensures resilience
against emerging fraud patterns, enhancing the system's efficacy over time. As we
strive to create a secure digital environment, the holistic approach employed in
this framework, from data collection to decision-making, underscores the
importance of collaboration between cutting-edge technology and proactive
cybersecurity measures. Ultimately, this Online payment fraud detection system
stands as a robust safeguard, mitigating risks and fostering trust in the realm of
online transactions.

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REFERENCES

• Design and development of financial fraud detection using data mining.

(2020). International Journal of Emerging Trends in Engineering
Research, 8(9), 5838–5843. https://doi.org/10.30534/ijeter/
2020/152892020
• Rucco, M., Giannini, F., Lupinetti, K., & Monti, M. (2019). A
methodology for part classification with supervised data mining.
Artificial Intelligence for Engineering Design, Analysis and
Manufacturing, 33(1), 100–113. https://doi.org/10.1017/
S0890060418000197
• Saarikoski, J., Joutsijoki, H., Järvelin, K., Laurikkala, J., & Juhola, M.
(2015). On the influence of training data quality on text document
classification using data mining methods. International Journal of
Knowledge Engineering and Data Mining, 3(2), 143. https://doi.org/
10.1504/IJKEDM.2015.071284

DATASET

*. https://www.kaggle.com/code/netzone/eda-and-fraud-detection/data

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