14.2. Real-World Applications

Mapping theory to the real world is not always the most intuitive process imaginable. There are several successful data mining applications that have been deployed across various sectors. In this section you learn examples of real-world applications which use data mining technology.

14.2.1. Fraud Detection

Have you ever received a call from your credit card company asking whether you made a specific credit card purchase? Do you know why you received the call? Chances are very good that it was due to an anomaly detected in your credit card usage as part of the company's fraud detection effort. Typically, customer usage patterns on credit cards are quite consistent. When a credit card is stolen, the usage pattern changes drastically. In spite of increasingly advanced theft protection schemes, credit card companies still lose a lot of money due to theft. Because credit card fraud is roughly 10% higher on the internet than off, Visa introduced CISP (Cardholder Information Security Processing) in 2000 and MasterCard followed with its Site Data Protection Service (SDPS) in 2001. The CISP and SDPS only help in securing and validating the data and do not actually prevent the use of stolen credit cards. In order to detect anomalies and act immediately, credit card companies are now using data mining to detect unusual usage patterns of credit cards; and once such a pattern is detected, the customer is called to verify the legitimacy of certain purchases.

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