# Financial Fraud Detection: One of the Best Practices of Knowledge Graph

Hello, I'm Qingxin Kong from Bangsun Technology. I'm glad that I have this opportunity to share the topic **Financial Fraud Detection: Best Practices of Knowledge Graph **with NebulaGraph community members.

### Background: Problems with traditional fraud detection solutions

Financial frauds remain a hot topic in recent years. There's a new trend emerging that fraudsters are organized and ganged up on. It is difficult to verify whether the customer's information provided is fake or not. Such inconsistent information makes it difficult to identify the real frauds and leads to a lot of problems. The bank may control the passing rate by raising the requirements to handle loan applications due to the uncertainty of the customer's information, which is effective but brings losses.

The 2022 government work report said that financial inclusion will be further expanded and the customer base will include rural customers, which means there will be "white accounts" having no credit reports. Traditional fraudulent behaviors include fake credit reports, commission agencies, and collusion. 

Some agencies focus on a few banks for credit card applications or loans. Those agencies know the bottom line and red line of the banks. As long as the bottom line is not touched, they can successfully apply for loans. Those agencies may even know how to make the loan amount higher.

Traditional fraud detection solutions rely heavily on expert rules, that is, risk control experts set a batch of rules through experience and then adjust the trigger conditions to find a business balance between the pass rate and rejection rate. It costs little to forge things like ID numbers and bank card flows. There are no good means of control for mass and high-volume frauds.

### Empowering graphs: Paths to intelligent fraud detection solutions
![](http://www-cdn.nebula-graph.io/nebula-website-5.0/images/blogs/financial-fraud-detection-one-of-the-best-practices-of-knowledge-graph/figure1.png)

Let's take a look at the development path of intelligent fraud detection solutions. 

The first step is to build expert rules, but it is difficult to cover all risks through expert experience. The second step is to build a [machine learning](https://www.nebula-graph.io/posts/fraud-detection-with-graph-machine-learning) model to prevent and control the overall risk and then use expert rules to help the model. Expert rules and machine learning models well complement each other. However, based on the current experience, we may face lots of problems when building the machine learning model. The first reason is insufficient data and the second is the limited growth of the sample data. Because there are probably be 6~7 ways to apply for loans or credit cards, manual inspection is required in the end, so the data growth is very low. There will be a case below to explain the problem.

Therefore, we need to use relational graphs to crack the problems of information inconsistency. Both group and agency frauds have a batch of application behaviors. We can use the visualized graphs to recognize fraud samples. In this way, we may capture dozens to hundreds of fraudulent applications. It is also a very effective way for sample replenishment. Graphs can also be used for consistency checks. The multiple sources of information prove the information inconsistency. Graphs are displayed from the dimension of relations which helps us to do secondary verification. For example, multiple applications sharing the same information like the same phone number and IP address are considered group fraud.

To detect these group frauds, we use graphs that help us find rules of relations. These rules are complementary to the original expert rules. On the other hand, we can extract graph information to optimize machine learning patterns which increases the pattern's ability to detect group frauds and label more suspicious objects. Therefore, the expert rules, machine learning models, and graphs construct an effective ecological closed loop and complement each other to detect frauds. 

In terms of the specific applications of relational graphs, I've listed the following applications:

**_Application Graph_**: An example is using graphs to detect fraudulent applicants for loans and credit cards. One characteristic of a group is that information is shared by the group members. From the visual queries of graph data, a lot of correlations will be found. The more common information includes identity card, cell phone number, device fingerprint, e-mail address, etc. We use this information to explore relationships among these data, and then visually analyze the specific fraudulent techniques.**_‍_**

**_Transaction Graph_**: For multi-level transfer relationships, we mainly focus on the final flow of funds and who are the beneficiaries. The recent gambling fraud issue is the main focus of concern for financial supervisors, which is also one of the main directions we focus on. We have many customer cases. Through the list of suspects provided by the supervision of our internal rule models, suspicious transactions can be detected. In this process, we use historical flow data to explore more layers of data starting with the collected accounts. We may also use the graph exploration feature or a graph platform to analyze existing data for incremental prevention and control. 

**_Enterprise Graph/Internal Control Graph_**: Nowadays, there are interconnections between two or more enterprise businesses. The impact of external risks on the enterprise is increasing. Using graphs can outline the whole picture of risks for an enterprise. Combined with the introduction of external risks, the impact of external risks on the enterprise can be predicted as early as possible. Internal control graphs are more often used for detecting ethical or operational risks, such as misuses or failure to do certain operations in accordance with rules and regulations. Moral risks occur more often in unusual financial transactions between employees and enterprises, such as illegal fundraising or misappropriation of funds. The prevention core is to use graphs to check the actual control accounts of employees. Because bank employees are well acquainted with the bank's business. Few employees take their own accounts for some crimes. The identification of these control accounts can be explored by the means of graphs. For example, the accounts of relatives. We have a case of a joint-stock bank. In this case, the target was located in the account of the employee's girlfriend, because from visual graphs we found that many funds actually flowed to the girlfriend's account. It is very difficult to detect a case like this by traditional means.

**_Money Laundering Graph_**: The money laundering problem has existed for a long time. There are many derivative money laundering ways in different periods. Popular ways include the underground money bank and the "order sneaking" platform. Criminals hide their money on the platform where order-sneaking customers' daily consumption transactions are normal, however, there is actually a fixed pattern on visual graphs to detect cases like this. So how creating business relations with graphs and making graph rules to perform real-time monitoring and detections have become an important task for Bangsun, taken as a graph technology platform, to empower business developers. We will talk about it later. 

**_Vehicle Insurance/Ops Graph_**: For the vehicle insurance/ops field, we combine the initialization network with the design of vertices and edges, then query for a subgraph where the data is relatively appropriate and related, and then combine the experience of business experts to perform some exploratory and analytical work.

### **Use case 1: Flow of funds**
![](http://www-cdn.nebula-graph.io/nebula-website-5.0/images/blogs/financial-fraud-detection-one-of-the-best-practices-of-knowledge-graph/figure2.png)

Here, some specific application scenarios are also briefly listed. The first one is the flow of funds after the loan is approved.

We can focus on business and consumer loans through graphs, and track whether the approved loans flow into the housing market or the stock market. In this process, we will use the penetration ability of graphs to calculate the amount and proportion of transferred funds. Thereafter, we can easily find risks and violations and provide a basis for investigation. The regulators currently follow the principle of "three approaches and one guideline" for internet credits, so we establish real-time risk control through graphs and focus on the fund flows.

Next, we can show the specific methods. For example, loans flow directly into the blacklisted accounts or their own accounts are transferred to an account not under their name, but the account may be a controlled account. The account is used for investment and financial management. These can be analyzed with graphs and the specific pattern of the funds because the fund flows will form a very obvious distribution or pattern on visual graphs.

This pattern is difficult to portray with the previous expert rules, because the expert rules can only find a one-dimensional relationship, up to two-dimensional relationships, while the graphs are more adept at multi-dimensional relationship detecting. In massive transaction structures, we can also find some patterned structures. For example, the above figure shows 4-5 vertices, which involve some centralized transfer in, decentralized transfer out, and chain transaction structures like tree branches and ant nests, which are all abnormal funding patterns. Through visual graphs and combination with business knowledge, in many cases, we can see that it is problematic at a glance. As for where the specific problem is, we can check it through some functions provided by the graph, such as the k-degree query or the discovery algorithm of important nodes.

### **Use case 2: Insurance frauds** 
![](http://www-cdn.nebula-graph.io/nebula-website-5.0/images/blogs/financial-fraud-detection-one-of-the-best-practices-of-knowledge-graph/figure3.png)

The second use case is frauds in insurance, such as vehicle insurance or health insurance. The primary vehicle insurance issues are collusive claim frauds. By monitoring and associating shared identity information, it is easier to find group members and excludes irrelevant data. As for health insurance, we generally focus more on the improper relationship between doctors and patients or providers. Once there is a large number of discrete values on a drug or disease, it represents fraud. This is the common way to detect individual fraud in the past. Now the group fraud problem is severe. Group fraudsters have a shift in thinking that dozens of accounts buy the same drug through individual payment accounts. There are also aggregation accounts and many other commonalities. Combined with graph analysis and algorithms, those group frauds can be detected.

### **Summary: Advantages of graph fraud detection**
![](http://www-cdn.nebula-graph.io/nebula-website-5.0/images/blogs/financial-fraud-detection-one-of-the-best-practices-of-knowledge-graph/figure4.png)

The advantages of graph fraud detection mainly include the following four aspects.

Association analysis: This means that people take the initiative to explore and discover suspicious features, and then use graphs to make some visual associations. Business developers take the initiative to use graph tools for visual exploration and then combine the features of different business areas, such as money laundering, credit card applications, and loan applications to find some suspicious points. The suspicious points are certainly different in different areas, but the business developers who often use graph tools have a certain sensitivity to such suspicious points.

Graph rules: This aspect is more for incremental monitoring. Unlike the previous expert rules, graph rules use the means of graph exploration associated with knowledge comparison to draw some conclusions. We conclude graph rules from the dimension of relationships, and then the system uses the rules to detect risks.

Pattern analysis: We recently called the same model, because many fraud patterns have a solidified pattern, such as cash-out from credit cards. After analyzing these solidified patterns, we convert the pattern in a graph query language into a graph library for a traversal query. Compared to the graph rules introduced above, it is a method for detecting existing data.

Community analysis: As mentioned above, insufficient data is lacking for modeling graph data, the community analysis is actually a very good feature to discover fraudulent groups by algorithms and combination with data labels.

The above four graph fraud detection advantages can help us detect frauds in real-time, on time, and afterward. They are both the main graph functions for anti-frauds and are considered our strengths. These advantages are currently applied by about dozens of our customers.

This is all we have for today's article! Please look forward to the next topic Introduction of Bangsun Knowledge Graph Platform and Practical Cases of State-owned Banks.

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A knowledge Graph specialist from Bungsun shares his best Practices of Knowledge graph in the Financial Fraud detection field.

Financial Fraud Detection: One of the Best Practices of Knowledge Graph

Fraud detection is important to any organization, be it a financial service or simply a web service. With the increase in technology and the ease of information being shared with other parties, traditional methods of fraud detection have been rendered obsolete. In this post, we will be looking into fraud detection using knowledge graph and how you could use graph databases like [NebulaGraph](https://nebula-graph.io/) to build a quality knowledge graph for fraud detection.


The main goal of fraud detection is to minimize losses and prevent further damage. In order to achieve this goal, we need to understand the nature of fraud and how it affects our business processes.

For instance, in case of credit card fraud, there are many cases where the criminals use stolen data to buy high-end products such as luxury cars, jewelry, and so on. As a result of this, banks have to pay heavy fines for these transactions and sometimes even lose their license due to their negligence in maintaining customers’ information securely.

In order to deal with this problem, banks use a variety of techniques such as machine learning, neural networks and artificial intelligence techniques to detect credit card frauds. However, these approaches have some limitations because these techniques rely on statistical models which can be easily fooled by hackers using synthetic data sets or through other methods known as adversarial attacks.

# Graph database for fraud detection: How to detect and visualize fraudulent activities using knowledge graph

Knowledge graph is a state of the art of fraud detection. The reason is that it contains a massive amount of data, and even if one piece of information is incorrect or missing, the system will still be able to identify the user as fraudulent.

Knowledge graphs are used by financial institutions to detect fake identities (e.g., people trying to open accounts with fake ID cards), credit card fraud (e.g., someone applying for credit with a stolen credit card), and money laundering (e.g., someone trying to move money from one account into another).

# What is a knowledge graph?

A knowledge graph is a database of facts and relations between different entities.

A knowledge graph can be used to represent the world, with objects being concepts or physical things, and their attributes, relationships and metadata. For example, a financial institution could have a knowledge graph containing information about its customers, loans, and employees. The institute might also have a separate knowledge graph containing information about its offices and locations.

Graph databases like NebulaGraph are a natural way of building a knowledge graph because they provide an efficient way of storing relations between entities. A fact can be represented as an entity and its relationship with another entity can be represented as an edge between them. This representation enables us to use graph algorithms on our knowledge graph to find answers to various questions such as if a user is a spam user or if a deal is likely fraudulent.

**Related:**  [What is a graph database and what are its use cases - Definition, examples &amp; trends](https://nebula-graph.io/posts/what-is-a-graph-database)

NebulaGraph is an open-source [graph database](https://www.nebula-graph.io/posts/what-is-a-graph-database) and it is best for dealing with large volumes of graph data.

NebulaGraph is a distributed, fault-tolerant and transactional graph database that provides ACID transactions, high availability, horizontal scalability and sub-second latency. It's designed to be easy to deploy and operate, both as a standalone instance or as part of a larger cluster.

The steps below outline a typical graph approach to fraud detection.

**Related:** [How I cracked Chinese Wordle using knowledge graph](https://nebula-graph.io/posts/crack-chinese-wordle-using-knowledge-graph)

# Data modeling

Fraud detection is a difficult problem for many reasons. For example, it is necessary to distinguish between legitimate requests and fraudulent requests, but many requests are legitimate on the surface but actually fraudulent in nature.

To solve this problem, you need to create a graph of relationships between the various pieces of information available about individual users. The most important piece of information is an account ID. This ID must be associated with all available information: account numbers, user names, IP addresses, social media accounts, email addresses, identification numbers and so on.

Once you have created this graph of relationships, it's possible to use graph algorithms such as the Louvain algorithm and Depth First Search to identify patterns that indicate fraud. This process can be automated so that once a pattern has been identified in one case (e.g., an account number), it can be applied to other cases with similar characteristics.

Knowledge Graphs are very effective in detecting fraud. The relationships between different entities provide context to the data, which helps in detecting fraudulent activity. For example, if you have a knowledge graph of relationships between people and their social media accounts, then you can find out if two accounts belong to the same person or not.

In addition to using graph algorithms, it's also possible to use rule-based systems or human experts who manually inspect suspicious cases and determine whether they're fraudulent or not. This can be done using NebulaGraph's data visualization tool[ Nebula Explorer](https://nebula-graph.io/products/explorer), which allows you to manually explore your graph data on a canvas.

# Define suspicious patterns

The goal of fraud detection is to identify suspicious activity. One of the most important steps is to define what suspicious activity to look for.

By using a knowledge graph, you can build powerful rules that detect known fraudulent behavior. Here are some examples of what you might want to look for:

*   Common attributes (same email addresses, tax identification number, or phone number, for instance)
*   Multiple parties using the same account
*   Short paths between transactions (a rapid return of purchase with no support call or reason given, for example)
*   Transactions outside normal patterns (a large payment made at 3 AM on a Saturday morning)

# Run graph algorithms

Once you have defined suspicious patterns in your fraud detection system, you can run graph queries using various graph algorithms in the knowledge graph to help you identifies these behaviors.

Here are some of the graph algorithms that are best for fraud detection in knowledge graph. You can use Nebula Algorithm To use these algorithms in your knowledge graph, which is also open source.

## Louvain

The Louvain method is a simple, efficient and easy-to-implement method for identifying communities in large networks.

The method unveils hierarchies of communities and allows to zoom within communities to discover sub-communities, sub-sub-communities, etc. It is today one of the most widely used methods for detecting communities in large networks.

![](http://www-cdn.nebula-graph.io/nebula-website-5.0/images/blogs/fraud-detection-using-knowledge-and-graph-database/figure1.png)

The Louvain method has been shown capable of detecting communities even when they are not well separated from each other, which makes it useful when analyzing complex networks such as fraud networks where communities may overlap with each other.

## PageRank

The PageRank algorithm was introduced by Google founder Lary Page. It was first used to rank web pages in the Google search engine. Nowadays, it is more and more used in many different fields, for example, in uncovering influential individuals and identifying high-frequency paths in fraud detection.

Influential individuals and high-frequency paths are both important characteristics of fraudsters as they tend to be more influential than others in their network and also tend to be connected through multiple schemes.

## Cycle detection

Cycle detection is especially a good fit for anti-money laundering applications. One of the money laundering patterns is a circular money flow. Money is being transferred from one account to another and eventually lands back in the originator’s account.

Using the cycle detection algorithm in your knowledge graph you can easily find such loops. For example, if a transaction involves multiple users and accounts, the system can detect if there is a circular flow between them.

![](http://www-cdn.nebula-graph.io/nebula-website-5.0/images/blogs/fraud-detection-using-knowledge-and-graph-database/figure2.png)

Cycle detection does not only work for money laundering but also for other forms of fraud like credit card fraud or identity theft.

# Visualize your data

Data visualization is the process of presenting data in a visual form that helps to identify patterns, trends and relationships. The goal of data visualization is to turn raw numbers into meaningful information that can be understood by anyone.

[Graph visualization](https://www.nebula-graph.io/posts/graph-database-visualization) helps you quickly analyze large amounts of data and spot patterns that indicate fraudulent activity. It allows you to investigate specific transaction patterns, find anomalies in real-time, and visualize complex relationships between entities. With this visual approach, you can also take advantage of graph algorithms to identify fraudulent transactions more efficiently than humans can.

Graph visualization cuts the manual analyst review time in half, allowing them to stop fraudulent transactions sooner and reduce wait times for non-fraudulent customers.

[Nebula Explorer](https://nebula-graph.io/products/explorer) is a graph data exploration app built upon NebulaGraph database. Taking advantage of the latest technologies, it is easy and fast to load large-scale graph data, query the data with visualized graphs, and identify fraudulent activities in a visualized way.

![](http://www-cdn.nebula-graph.io/nebula-website-5.0/images/blogs/fraud-detection-using-knowledge-and-graph-database/figure3.png)

# Conclusion

The global economy is facing increasing risks due to fraud. The technological challenge of quickly recognizing and analyzing massive volumes of transaction data makes fraud detection a very complex task. To meet mounting expectations, financial institutions and banks must use innovative technologies for efficient, comprehensive and reliable fraud detection such as graph technology.

It is clear that graph technology offers many advantages when it comes to fraud detection. This is an area in which "the more the better" also applies, as the number of available variables increases and their interconnections get richer and deeper. Graph databases can handle this without loading any additional costs – that is a key advantage. To conclude: fraud detection has been not just made more efficient, but more manageable in general by the use of graph technology.

## About the author

Nick Russell is a freelancing technical writer with a special focus on graph technology, machine learning and cloud computing. 

## References

*   Internet Financial Fraud Detection Based on a Distributed Big Data Approach With Node2vec - [IEEE](https://ieeexplore.ieee.org/stamp/stamp.jsp?arnumber=9363921)
*   Fraud Detection Using Graph Analytics -[ Md. Ekramul Hoque Shajib](https://medium.com/pathaoengineering/fraud-detection-using-graph-analytics-4b7386fb648d)
*   Financial Crime &amp; Fraud Detection Using Graph Computing: Application Considerations &amp; Outlook - [arvix](https://arxiv.org/pdf/2103.01854.pdf)

# How NebulaGraph Works
1. [NebulaGraph Architecture — A Bird’s Eye View](https://www.nebula-graph.io/posts/nebula-graph-architecture-overview)
2. [Benchmark: NebulaGraph vs Dgraph vs JanusGraph](https://www.nebula-graph.io/posts/benchmarking-mainstraim-graph-databases-dgraph-nebula-graph-janusgraph)
3. [Comparison: Neo4j vs NebulaGraph vs JanusGraph](https://www.nebula-graph.io/posts/performance-comparison-neo4j-janusgraph-nebula-graph)
4. [Deploy the Graph Database on Kubernetes](https://www.nebula-graph.io/posts/how-to-deploy-nebula-graph-in-kubernetes)



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Knowledge graph is a state of the art of fraud detection. The reason is that graph database contains a massive amount of data, and even if one piece of information is incorrect or missing, the system will still be able to identify the user as fraudulent.

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