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Credit card fraud

How to counter frauds?

Based on my research, which examines how advanced statistical and probabilistic techniques could better detect fraud, sequential analysis – coupled with new technology – holds the key.

Thanks to the continuous monitoring of cardholder expenditure and information – including the time, amount and geographical coordinates of each purchase – it should be possible to develop a computer model that would calculate the probability that a purchase is fraudulent. If the probability passes a certain threshold, the card issuer would be issued an alarm.

The company could then decide to either block the card directly or undertake further investigation, such as calling the consumer.

The strength of this model, which applies a well-known mathematical theory called optimal stopping theory to fraud detection, is that it aims at either maximising an expected payoff or minimising an expected cost. In other words, all the computations would be aimed at limiting the frequency of false alarms.

My research is still underway. But, in the meantime, to reduce significantly the risk of falling victim to credit card fraud, here are some golden rules.

  • First, never click on links in emails that ask you to provide personal information, even if the sender appears to be your bank.
  • Second, before you buy something online from an unknown seller, google the vendor’s name to see whether consumer feedback has been mainly positive.
  • And, finally, when you make online payments, check that the webpage address starts with https://, a communication protocol for secure data transfer, and confirm that the web page does not contain grammatical errors or strange words. That suggests the webpage may be a fake, designed solely to steal your financial data.

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Bruno Buonaguidi is Researcher, InterDisciplinary Institute of Data Science, Università della Svizzera italiana

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