Believe it or not, even a savvy person like me is subject to fraud once in a while. Perusing our most recent credit card bill, I came across three charges that were clearly not ours - small charges made at gas stations in another state. When we called the credit card company, they determined that our card had been duplicated, since the charges had been swiped through a card reader. Apparently, at some point recently our credit card data must have been double-swiped through a magnetic card reader and then transferred to a duplicated card.
The duped card was then used for small-ticket purchases at innocuous locations intended to evade the bank's fraud detection algorithms. The pattern is the fraudsters pilot a couple of small charges, and if the account holder doesn't shut off the card, much larger charges are made.
Once the bank was made aware of the situation, they immediately cancelled the card and erased out charges. When asked about whether they would investigate the fraud, the customer service representative (CSR) said that they don't bother with these kinds of small amounts, but just write it off.
Ever wonder how much money is lost due to small-scale fraud? The CSR told us that $20,000,000.00 is written off each quarter! I think, though, that it would be possible to use BI techniques to track down this illegal behavior...
The kinds of charges that appeared were interesting: $33.10, $45.00, and $70.00. Of the 3 charges, only one was not a round-dollar amount, and the second and third charges were done at the same location almost at the same time.
Back in April, I wrote an article for B-EYE-Network on the use of Benford's Law for Information Analysis. In this article, I described a digital analysis phenomenon regarding the distribution of numeric digits in large data sets. The truth is, Benford Analysis has been used primarily as an auditing technique to look for fraudulent behavior , and I am confident that (with a little thought) a reasonable use of the technique could help in identifying transaction patterns involving different duplicated credit cards.
Individuals are likely to repeat their bad behavior, and even if they think that they are creating random dollar amount charge sequences, each may reflect a particular signature that identifies the perpetrator, and by analyzing the geographic density of the illicit charge locations, pinpoint a reasonable location to start to track down the offenders.
Anyone out there with experience in fraud detection using Benford's Law? What do you guys think?
Posted August 26, 2005 2:29 PM
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