Volume 21, Issue 1 (3-2026)
J. Mon. Ec. 2026, 21(1): 81-120 |
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Nademi Y, Hoseini S M, Ebtia M, Ahmadi F. Hybrid PCA–SVM Approach to Credit Card Fraud Detection: Enhancing Payment System Oversight and Financial Stability. J. Mon. Ec. 2026; 21 (1) :81-120
URL: http://jme.mbri.ac.ir/article-1-736-en.html
URL: http://jme.mbri.ac.ir/article-1-736-en.html
1- Department of Economics, Faculty of Humanities, Ayatollah Boroujerdi University, Boroujerd, Iran
2- Gahar Artificial Intelligence Research Group, Ayatollah Boroujerdi University, Boroujerd, Iran
3- Department of Computer Engineering, Faculty of Engineering, Ayatollah Boroujerdi University, Boroujerd, Iran
2- Gahar Artificial Intelligence Research Group, Ayatollah Boroujerdi University, Boroujerd, Iran
3- Department of Computer Engineering, Faculty of Engineering, Ayatollah Boroujerdi University, Boroujerd, Iran
Abstract: (545 Views)
| Credit card fraud remains a significant threat to financial institutions and the integrity of digital payment systems, posing challenges for both operational risk management and regulatory oversight. This paper presents a novel hybrid machine learning framework for credit card fraud detection that combines Principal Component Analysis (PCA) for feature extraction with a Support Vector Machine (SVM) based feature selection mechanism. The aim is to reduce dimensionality while retaining the most informative features, thereby improving detection performance on highly imbalanced transaction datasets. The approach is evaluated on a large credit card transactions dataset, where PCA is first used to transform the input variables into principal components capturing the majority of variance, and an SVM with recursive feature elimination is then employed to identify and retain the most relevant components. Experimental results demonstrate that the proposed PCA–SVM pipeline significantly outperforms baseline models lacking this hybrid feature engineering: for example, it achieves a higher fraud recall (detection rate) by several percentage points while maintaining high precision, leading to improved F1-scores and overall accuracy. These findings indicate that the hybrid method effectively mitigates class imbalance issues and eliminates redundant features, yielding a more compact and robust fraud detection model. By enhancing the identification of rare fraudulent transactions without excessive false alarms, our study contributes to central bank objectives in fraud risk management. The proposed framework can strengthen the resilience of digital payment infrastructures and support payment system oversight, ultimately helping to safeguard financial stability and public trust in electronic payment channels. |
Keywords: Credit card fraud detection, Principal Component Analysis, Support Vector Machine, Feature selection, Hybrid machine learning, Feature Extraction
Type of Study: Original Research - Empirical |
Subject:
Monetary Economics
Received: 5 Sep 2025 | Accepted: 1 Feb 2026 | Published: 29 Mar 2026
Received: 5 Sep 2025 | Accepted: 1 Feb 2026 | Published: 29 Mar 2026
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