CAPSTONE PROJECT
REPORT
“ CREDIT CARD FRAUD DETECTION USING MACHINE LEARNING”
SUBMITTED BY PARTIAL FULFILLMENT OF THE
DIPLOMA IN COMPUTER ENGINEERING
SUBMITTED BY:
Nayan N. kalapande (46)
Anirudh A. Nirgule (47)
Swaraj G. Borekar (29)
Shivam S. Korde (50)
Om R. Nawalkar (41)
GUIDEDBY:
Prof. S. H. Bailmare
DEPARTMENT OF THE COMPUTER ENGINEERING
GOVERMENT POLYTECHNIC,
ACHALPUR2024-2025
GOVERNMENT POLYTECHNIC, ACHALPUR
DEPARTMENT OF COMPUTER ENGINEERING
CERTIFICATE
2024-2025
Nayan N. kalapande (46)
Anirudh A. Nirgule (47)
Swaraj G. Borekar (29)
Shivam S. Korde (50)
Om R. Nawalkar (41)
This is to certify that the capstone-project entitled
Has been duly completed by the following group of students under my
guidance, in a satisfactory manner as partial fulfillment of the Diploma course of
Computer Engineering MSBTE, Mumbai.
SUBMITTED BY:
GUIDE HOD PRINCIPAL
PROF. S.H.BAILMARE PROF. N.S. UDAPURAKAR PROF. A.G. RAUT
ACKNOWLEDGEMENT
It is an incident of great pleasure for us to submitting this capstone- project.
We take this opportunity to express our deep sense of gratitude & great thanks to
my guide HOD. N.S. UDAPURAKAR SIR and PROF. S.H.BAILMARE MAM
Who has been a constant source of guidance and inspiration through this seminar
work. We are also grateful to
them for the encouragement & suggestion given by them from time to time.
It’s grateful to thank all the teaching members of computer technology
engineering department & sincere thanks to our Principal PROF. A.G. RAUT
SIR who always inspire us.
We are also thankful to our friend’s & library staff members whose encouragement
& suggestion had helped us to complete our micro
project. Last but not least I thankful to our parents whose best wishes are
always with us.
SUBMITTED BY:
Nayan N. kalapande (46)
Anirudh A. Nirgule (47)
Swaraj G. Borekar (29)
Shivam S. Korde (50)
Om R. Nawalkar (41)
INDEX
CHAPTER No. TITLE
1 Introduction
Project Benefits
Project Module
2 Literature survey
3 Proposed Methodology and Implementation
3.1 Understanding the Customer Context
3.2 Data Collection and Communication with Customers:
3.3 Validate the Requirements
3.4 Manage Requirements Changes
4 Reference and Bibilography
Abstract
Credit card fraud has become a significant concern in today's digital economy, with an
increasing number of financial transactions occurring online. Detecting fraudulent activities
efficiently and accurately is critical for minimizing financial losses and maintaining trust in
electronic payment systems. Machine learning (ML) techniques have shown considerable
promise in addressing this challenge due to their ability to learn patterns in large datasets and
predict anomalies.
This paper presents the development and evaluation of a credit card fraud detection system
using machine learning algorithms. The system aims to identify fraudulent transactions by
analyzing historical transaction data, leveraging both supervised and unsupervised learning
techniques. Popular algorithms such as logistic regression, decision trees, random forests,
support vector machines (SVM), and neural networks are explored to classify transactions as
fraudulent or legitimate.
To handle the imbalanced nature of the dataset (where fraudulent transactions are much rarer
than legitimate ones), techniques like Synthetic Minority Over-sampling Technique (SMOTE)
and random undersampling are employed. Additionally, feature engineering plays a crucial role
in improving the model's accuracy by selecting and transforming important variables. The
system's performance is evaluated based on metrics such as accuracy, precision, recall, F1-
score, and Area Under the Receiver Operating Characteristic Curve (AUC-ROC).
Chapter :- 1
“CREDIT CARD FRAUD DETECTION USING MACHINE LEARNING ”
Introduction
Introduction to Credit Card Fraud Detection System Using Machine Learning
Credit card fraud is a growing concern in the digital age, where electronic transactions have
become a significant part of everyday life. Fraudulent activities not only cause financial losses
to individuals and financial institutions but also erode trust in online payment systems. As the
volume of transactions increases, traditional rule-based fraud detection methods are no longer
sufficient to keep up with the dynamic and sophisticated nature of fraud.
To address this challenge, machine learning (ML) has emerged as a powerful tool for fraud
detection. Machine learning models can analyze vast amounts of transactional data, identify
patterns, and detect anomalies in real-time. These models learn from historical data and
continuously improve their ability to distinguish between legitimate and fraudulent transactions.
• Project Benefits
1. Improved Fraud Detection Accuracy
• Machine learning algorithms can identify complex fraud patterns, reducing false
positives and improving detection accuracy.
• The system continuously learns and adapts to emerging fraud techniques.
2. Real-Time Fraud Detection
• Fraudulent transactions can be detected and blocked instantly, preventing losses.
• Customers receive immediate alerts about suspicious activities.
3. Cost Reduction
• Early fraud detection reduces operational costs, chargebacks, and manual
intervention.
• Streamlines fraud management processes.
4. Enhanced Customer Experience
• Fewer false alarms mean smoother transactions for legitimate customers.
• Proactive notifications build trust and customer satisfaction.
5. Scalability and Flexibility
• Machine learning can handle large transaction volumes and scale as the business
grows.
• The system adapts to new fraud tactics over time.
The project contains seven main modules.
• Data Collection and Preprocessing Module
• Feature Selection Module
• Model Selection and Training Module
• Evaluation and Performance Metrics Module
• Fraud Detection and Prediction Module
• Model Deployment and Monitoring Module
• Visualization and Reporting Module
1. Data Collection and Preprocessing Module
This module is responsible for collecting, cleaning, and preparing the data for the
machine learning model. Since the dataset may contain noisy, incomplete, or irrelevant
information, this module ensures the data is structured and ready for analysis.
2. Feature Selection Module
In fraud detection, identifying the most relevant features is crucial for improving model
performance and preventing overfitting. The feature selection module automates the
process of selecting the best features based on statistical techniques or model-based
methods
3. Model Selection and Training Module
This module is responsible for selecting the appropriate machine learning algorithms,
training the model, and tuning the hyperparameters. It is a core part of building the fraud
detection system, as the right model and settings can significantly impact accuracy.
4. Evaluation and Performance Metrics Module
This module evaluates the trained model’s performance using relevant metrics,
especially in the context of imbalanced datasets. Metrics like precision, recall, F1-score,
and AUC (Area Under the Curve) are preferred over accuracy.
5. Fraud Detection and Prediction Module
Description: Once the model is trained, this module is responsible for predicting
whether a new transaction is fraudulent or not, often in real-time, as part of a production
system.
6. Model Deployment and Monitoring Module
This module handles the deployment of the fraud detection model into production and
ensures its continued performance over time.
7. Visualization and Reporting Module
Description: This module provides dashboards and reports to stakeholders (e.g., risk
management teams) to help them understand the performance of the fraud detection
system and make informed decisions.
Chapter 2
Literature Survey:
Credit card fraud detection is a critical area in financial security. Various research
studies have explored how machine learning techniques can identify and mitigate
fraudulent transactions. Below is a literature survey highlighting key papers,
methodologies, and findings in this domain.
Existing Methods and Challenges
1) Supervised Learning:
• Logistic Regression: A popular and simple ML model that is often used for binary
classification tasks. In fraud detection, the classes are typically "fraudulent" vs. "non-
fraudulent" transactions. It works well when the dataset is balanced, but may not perform as
well in highly imbalanced datasets.
• Decision Trees and Random Forests: Decision trees work by splitting the dataset
based on feature values, and random forests use multiple decision trees to make predictions.
These models can capture complex
2) Unsupervised Learning:
• Clustering (K-means, DBSCAN): relationships and interactions between features, and
they often perform well in fraud detection.Clustering algorithms group similar data points. In
fraud detection, they can help identify transactions that deviate from normal patterns.
• Anomaly Detection: Algorithms like Isolation Forest or One-Class SVMs are used
to identify transactions that differ significantly from normal behavior. These
methods do not require labeled data but are effective for detecting outliers (potential
frauds).
3) Hybrid Methods:
• Ensemble Methods: These involve combining multiple models to improve
accuracy. Random Forests, Gradient Boosting Machines (GBM), and XGBoost are
popular ensemble methods used for fraud detection.
• Stacking: Different models (e.g., decision trees, neural networks, and SVM) are
stacked together to form a stronger predictive model.
4) Data Privacy and Security Concerns:
• Credit card transaction data is sensitive, and collecting, storing, and using this data
for machine learning models must adhere to privacy regulations such as GDPR
(General Data Protection Regulation) or CCPA (California Consumer Privacy
Act). Secure handling and anonymization of data is a constant challenge.
5) Real-time Detection:
• Fraud detection systems must operate in real-time or near real-time. This means
that models need to be fast and capable of making accurate predictions with
minimal latency. Real-time decision-making also requires efficient data pipelines
and model optimization to ensure that predictions can be made promptly.
Chapter 3
Customer requirements determination
3.1 Understanding the Customer Context:
• Identify Stakeholders: Determine who the stakeholders are (e.g., end customers, users,
management, regulatory bodies). Different stakeholders might have different requirements.
• Define the Problem or Need: Understand the specific problem the customer is trying to
solve or the need they are trying to fulfill. This might involve discussions, interviews, or
surveys with customers to clarify their goals.
3.2 Data Collection and Communication with Customers:
• Surveys and Questionnaires: Use structured surveys to gather specific, quantifiable
data from a large audience. This is useful for identifying common needs and preferences.
3.3 Validate the Requirements
• Review with Customers: Present the documented requirements to the customers or
stakeholders for feedback and validation. This can be done through reviews, walkthroughs,
or beta testing.
3.4 Manage Requirements Changes
• Change Control Process: Establish a formal process to handle changes in requirements,
including reviewing the impact of changes on scope, timeline, and resources.
• Continuous Feedback Loop: Maintain ongoing communication with customers
throughout the product or service development process to ensure that new needs or concerns
are addressed in a timely manner.
References:
1. Sommerville, I. (2011). Software Engineering (9th ed.). Addison-Wesley.
o This book discusses various aspects of software engineering, including
requirement gathering, analysis, and management techniques.
o Boehm, B. W. (1989). Software Engineering Economics. Prentice-Hall.
o Boehm’s work provides insights into requirements engineering and the impact
of good requirements on the project’s success.
2. Glinz, M. (2007). "On the role of requirements engineering in software
development." Proceedings of the 1st International Workshop on Requirements
Engineering: Foundation for Software Quality.Details the use of deep learning for
license plate recognition in automated systems.
3. Alpaydin, E. (2020). Introduction to Machine Learning (4th ed.). MIT Press.
• A foundational book on machine learning, covering the principles and algorithms that
could be applied to fraud detection systems.
4. PROF. G.K. Yadav (2024). Credit card fraud detection using machine learning :
Approaches and Technologies.Government Polytechnic, Achalpur.
o A reference by Prof. G.K.Yadav that provides an overview of current approaches
and technologies in traffic violation detection.
Bibliography:
https://www.w3schools.com
https://opencv.org
https://en.wikipedia.org/wiki/Traffic_violation
https://github.com
https://ieeexplore.ieee.org
