Credit card fraud detection: A guide

Given how easy it has become to apply for a credit card online in 2024, credit cards are now accessible to a wide variety of the Indian population. However, instances of credit card fraud have increased steadily over the years. Customers must know more about credit card fraud detection to secure their online transactions from all forms of fraudulent activities.

What is credit card fraud detection?

Credit card companies and financial institutions employ several methodologies and policies to tackle credit card fraud detection and thereby secure their customers’ data. The collection of these preventive measures taken by these institutions is called ‘credit card fraud detection’. As an increasing number of financial transactions take place online, card companies and banks are deploying AI and machine learning to analyse data in order to predict and prevent credit card fraud. One of the key methods of doing this is anomaly detection.

What are anomalies, and how are they detected?

Credit card companies use predictive modelling techniques and machine learning to detect outliers or ‘anomalies’ in credit card data. An anomaly is any data point or set of data points that stand out from the distribution of data. For instance, if, among the credit card users of a region, a particular set of individuals are reported as transacting extraordinarily high amounts on a regular basis, their profiles could be considered as anomalies.

Credit card companies create user profiles of individuals and store the following details:

• The purchase history and the other historical data
• Location
• Device ID
• IP address
• Payment amount
• Transaction information

Sudden increases in spending, purchases of large ticket items, multiples transactions with the same merchant, and transactions at unusual hours can be considered as a few examples of anomalies.

Steps you can take to secure your credit card from online fraud:

Here are some steps you can take as a customer to secure your credit card from all forms of online credit card fraud –

• Create strong passphrases and keep changing them: Passphrases are passwords that consist of a sentence and a combination of numbers and special characters. These are very strong passwords that are also very easy to remember. You must keep changing your passphrases regularly. 

• Do not use public Wi-Fi to transact online: Always use a secure Wi-Fi connection while making any credit card transactions online.
• Beware of phishing attempts: Do not share your personal and credit card-related information to any fraudsters who might try to extract it from you via emails or phone calls. 

• Shred your credit card bills before disposing them: While disposing credit card bills in public places, you must always shred them and only then dispose them. 

• Regularly check your credit card statements: You must regularly check your credit card statements to report any unauthorised or suspicious credit card transactions made using your credit card. 

In summary, credit card fraud detection is a set of measures taken by credit card companies and banks to help secure their customers’ online transactions and personal data.