Detecting fraud can be a challenging task. It requires an expert’s eye and a system of methods. Depending on the nature of the fraud, the system will use a variety of variables from images to transaction details. It can also use data mining to identify patterns related to fraud.

What is fraud detection? Definition from SearchSecurity

The Internet provides countless ways for criminals to steal assets. Some of the most common scams include identity theft and account theft. They can happen anywhere, from the privacy of a person’s home to the business of a bank.

Fraud prevention technologies are used by businesses, government entities, and insurance companies to identify fraudulent activities. These techniques typically include data analysis and the use of AI-powered software. There are two main types of fraud detection systems: rule-based and machine learning. These systems can be supervised or unsupervised. Machine learning systems use data mining and machine learning algorithms to analyze historical data and identify patterns related to fraud. Typically, these methods are used in the financial sector.

Rule-based systems use rules written by fraud analysts. These rules often follow simple if/then logic. However, these systems can’t handle complex fraudsters. They also have limited capability to process real-time data streams. These systems often rely on shared blacklists.

A rule-learning program can be customized to the business’s strategy. However, it can’t distinguish between fraudulent transactions and error transactions.

Unsupervised learning models are more precise. They can analyze unlabeled data and classify it into clusters. This allows them to better detect fraud. These models also allow for hidden correlations.