Why is Detecting Fraud so Hard?

Fraud detection is a set of activities undertaken to prevent money or property from being obtained through false pretenses. Fraud detection is applied in many industries, such as banking or insurance. In banking, fraud may include forging checks or using stolen credit cards. For this example, we will focus on fraud in credit card transactions.

This kind of fraud, in credit card transactions, is a huge problem for credit card issuers as well as for the final payers. The European Central Bank reported that in 2016, the total number of card fraud cases using cards issued in the Single Euro Payments Area (SEPA) amounted to 17.3 million, and the total number of card transactions using cards issued in SEPA amounted to 74.9 billion (https://www.ecb.europa.eu/pub/cardfraud/html/ecb.cardfraudreport201809.en.html#toc1).

However, the amount of fraud is not the only problem. From a data science perspective, fraud detection is also a very hard task to solve...