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How much does card fraud detection save a bank?
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Instructions: First, make yourself a copy of this spreadsheet (do not request edit access). Then change the light yellow cells as you wish. The blue cells are the bottom line.
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Cost of a FP$100
Average cost of each false positive - inconvenience to cardholder
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Cost of a FN$500
Average cost of each false negative - fraud that goes undetected
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Fraud rate0.1%
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Num transactions100,000,000of which 100,000 are fraudulentwhich cost$50,000,000
if none are detected
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Transactions held0.2%
as potentially fraudulent, which is
200,000transactions
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Lift300
... so the held transactions are
30.00%positive, that is60,000
detected cases of fraud
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FP countFP costFN countFN costTotal cost
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Cost with model140,000$14,000,00040,000$20,000,000$34,000,000
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$16,000,000
savings compared to no fraud detection
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By Eric Siegel
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http://www.bizML.com
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http://www.thepredictionbook.com
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