Payment security is a key goal for all businesses that accept digital payments. Global losses from online payment fraud are projected to total more than $343 billion between 2023 and 2027, highlighting the growing need for fraud prevention. Businesses must strive to keep payments secure while upholding a high standard of customer experience and maximizing operational efficiency.
However, achieving this goal can be complicated, especially as new technologies continue to shape payments. While it’s true that the ideal payment experience will depend on the specific business and situation, certain practices can work across the board. Among these is real-time card validation.
Below is a guide on card validation, including what it is, the different ways to use it, and how to validate cards in real time.
What’s in this article?
- What is card validation?
- Card validation methods
- How to validate a card in real time
- Why does card validation matter?
- How Stripe Radar can help
What is card validation?
Card validation is a collection of checks and protocols designed to verify the authenticity of a credit or debit card during a transaction. For businesses that want to minimize financial risks, such as fraud and chargebacks, card validation is central. The processes that make up card validation differ in form and scope. But they share the common goal of confirming that the person who initiates the transaction has a legitimate right to use the card in question.
Card validation methods
Businesses that accept card payments must create and maintain impenetrable security protocols around payments while offering customers an easy, low-friction payment experience. This requires implementing technology that reflects the nuances of fraud prevention and the expectations of modern customers. To that end, here are some of the most common card validation methods.
|
Method |
What does it use |
When to use |
|---|---|---|
|
Card verification value (CVV) checks |
The three- or four-digit security code printed on the card |
During online checkouts to ensure the purchaser has physical possession of the card |
|
Address verification service (AVS) |
The billing address provided by the customer at checkout |
To verify card ownership by matching the customer's input against the address on file with the bank |
|
Two-factor authentication (2FA) |
Out-of-band codes sent via text messages (SMS) or push notifications to a linked device |
To add a secondary security layer that confirms the user has access to the cardholder's mobile phone |
|
Tokenization |
Randomly generated identifiers (tokens) that replace raw card data |
To securely store payment information for future use while minimizing the impact of a data breach |
|
Geo-filtering |
The geographic origin or internet protocol (IP) address associated with the transaction |
To implement stricter verification or block transactions that originate from high-risk regions |
|
Behavioral biometrics |
Interaction patterns such as keystroke dynamics, mouse movements, and device tilt |
For invisible, high-level identity verification based on how a user physically interacts with a digital interface |
|
Machine learning algorithms |
Large-scale historical transaction data and developing behavioral patterns |
To proactively identify and block suspicious activity by adapting to new fraud techniques in real time |
Each of these methods contributes to a multilayered card validation system. This system offers businesses a flexible defense against fraudulent transactions while giving customers a safer, more reliable payment experience.
How to validate a card in real time
To ensure that transactions are fast and secure, card validation must be efficient and accurate. Real-time card validation is also a defense against the many types of payment fraud that might penetrate a payment system with a slower validation process.
Here are some of the methods businesses can use to validate card payments in real time.
Verifying the card
Businesses can automate the validation process with application programming interface (API) calls to the payment gateway. This enables the company to send the issuing bank a request to confirm the card’s authenticity. The issuing bank’s response confirms whether the card is valid and whether the entered information (e.g., billing address, CVV) matches the issuer’s records.
Implementing API-based verification helps reduce human error and speeds up the transaction process. This method can also increase customer trust because the entire process is automated and therefore less susceptible to manual mistakes.
Confirming authorization
Businesses can make small charges—sometimes only a few cents—to a card before they process the full transaction. If the preauthorization goes through successfully, the actual transaction’s acceptance chance increases sharply. While some businesses refund these small charges immediately after successful preauthorization, others choose to subtract them from the total transaction amount.
Detecting anomalies and fraud
Sophisticated machine learning models can analyze transaction data immediately to flag potential issues. These models consider several variables, including spending patterns and geolocation, to produce a risk score. High-risk transactions can be automatically declined or flagged for manual review, which adds another important component to your transaction security strategy.
Authenticating for additional security
In multifactor authentication (MFA), the cardholder must produce two or more pieces of evidence to verify their identity. Evidence can include SMS-based authentication, email verification codes, and mobile app notifications, which are used alongside traditional card details to determine the customer’s identity. While MFA might add a few seconds to the transaction time, the benefits outweigh the small delay.
Verifying biometrics
Although it’s not yet part of mainstream methods, biometric verification (e.g., facial recognition, fingerprint scans) can bring another layer of security to card transactions.
Each of these methods can contribute to a comprehensive, real-time card validation strategy. When businesses combine multiple methods, they decrease the risk of unauthorized transactions substantially.
Why does card validation matter?
While it might seem routine and technical, card validation is one of the most consequential parts of the payment process. When card validation works well, every part of the business benefits. But the high security stakes mean that when card validation fails, the potential downsides can be severe.
Card validation is important for a few key reasons, including the following.
|
Benefit |
Why it matters |
|---|---|
|
Consumer protection |
Flagging the unauthorized use of lost or stolen cards early minimizes financial damage to the cardholder and prevents fraudulent transactions before they’re finalized. |
|
Customer experience |
Frictionless security builds buyer confidence and loyalty. Reducing fraud also allows customer service teams to focus on core support rather than dispute resolution. |
|
Financial health |
Minimizing revenue loss from fraud and chargebacks ensures more resources remain available for growth-oriented projects and operational stability. |
|
Regulatory compliance |
Adhering to industry standards such as the Payment Card Industry Data Security Standard (PCI DSS) protects the business from costly legal issues, penalties, and the loss of processing privileges. |
|
Fee structure |
High fraud rates can lead to increased processing fees from providers. Maintaining a clean transaction history helps keep overhead costs low and protect margins. |
|
Resource allocation |
Automating validation reduces the need for manual fraud reviews. These saved resources can be reinvested into product improvement, marketing, or customer service. |
|
Brand trust and reputation |
A secure checkout environment earns favorable reviews and strengthens your market reputation, making it easier to attract and retain customers in a competitive market. |
|
International expansion |
Adaptable validation systems mitigate the unique risks of transnational fraud, making it safer and easier to enter new global markets and accept diverse payment methods. |
For these reasons, card validation should be a high priority for any business that accepts card payments, especially card-not-present transactions.
How Stripe Radar can help
Stripe Radar uses AI models to detect and prevent fraud, trained on data from Stripe’s global network. It continuously updates these models based on the latest fraud trends, protecting your business as fraud evolves.
Stripe also offers Radar for Fraud Teams, which allows users to add custom rules addressing fraud scenarios specific to their businesses and access advanced fraud insight.
Radar can help your business:
Prevent fraud losses: Stripe processes over $1 trillion in payments annually. This scale uniquely enables Radar to accurately detect and prevent fraud, saving you money.
Increase revenue: Radar’s AI models are trained on actual dispute data, customer information, browsing data, and more. This enables Radar to identify risky transactions and reduce false positives, boosting your revenue.
Save time: Radar is built into Stripe and requires zero lines of code to set up. You can also monitor your fraud performance, write rules, and more in a single platform, increasing efficiency.
Learn more about Stripe Radar, or get started today.
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.