Tree-based cost sensitive methods for fraud detection in imbalanced data

Abstract

Bank fraud detection is a difficult classification problem where the number of frauds is much smaller than the number of genuine transactions. In this paper, we present cost sensitive tree-based learning strategies applied in this context of highly imbalanced data. We first propose a cost sensitive splitting criterion for decision trees that takes into account the cost of each transaction and we extend it with a decision rule for classification with tree ensembles. We then propose a new cost-sensitive loss for gradient boosting. Both methods have been shown to be particularly relevant in the context of imbalanced data. Experiments on a proprietary dataset of bank fraud detection in retail transactions show that our cost sensitive algorithms allow to increase the retailer’s benefits by 1,43% compared to non cost-sensitive ones and that the gradient boosting approach outperforms all its competitors.