An improved location based authentication (LBA) system for detecting fraudulent transactions committed by means of misuse of payment cards is disclosed. The improved LBA system performs a series of transaction analysis and generates a fraud-score which provides an indication as whether to authorize an attempted transaction. The system is designed to increase profitability of credit card companies by reducing the accumulated losses due to fraud. In one embodiment, the system detects fraud by analyzing the behavior patterns of card holders and merchants.