Evidently, the use of electronic card based (Credit and Debit) for transaction has increased rapidly due its convenience and ease of use for payment of online transaction and regular purchases. However, the integration of electronic payment for goods and services has created the chances of incidence of fraudulent activities. This paper is aimed to authenticate the credit card transaction through a scalable security system which will promote trust in communication channels using Hidden Markov Model (HMM) which will accept or decline incoming transaction based on the cardholder spending pattern. Fraud Detection System (FDS) developed is an online tool which used the HMM to detect, control and Monitor fraud in electronic card transaction. Through this process the result demonstrates that HMM can decrease fraud loss.

Keywords : Fraud Detection, Spending Pattern, Credit Card, Electronic Commerce.