Card testing fraud, a prevalent form of credit card fraud, is when fraudulent actors validate the usability of stolen credit card numbers. This fraud usually involves executing several low-value transactions on various websites. These small transactions are often unnoticed by cardholders and fraud detection systems, which tend to focus on larger, more irregular spending patterns. Those committing the fraud use these test transactions to verify the card is still active and has not been flagged or cancelled because of theft and to confirm the card has a sufficient credit limit for purchases.

This kind of fraud uses legitimate transaction processes to prevent detection. Fraudulent actors often target websites known for processing a high volume of low-value transactions because those are less likely to trigger alerts. Once a card passes this initial “testing” phase and is deemed active and unblocked, its value to the fraudulent actor drastically increases. They might then use the card themselves to make more substantial purchases, or they might sell the card details on the illegal market.

E-commerce fraud was projected to cost businesses more than $48 billion globally in 2023, according to a Juniper Research report. The simplicity of card testing fraud – requiring little more than a list of stolen card numbers and access to the internet – makes it a preferred method among cybercriminals. The digital nature of these transactions also means they can be conducted from anywhere, complicating law enforcement efforts and increasing the challenge for businesses and financial institutions trying to protect their customers’ financial information. Below is a guide to what businesses need to know about this type of fraud and how to protect themselves against it.

What’s in this article?

• How does card testing fraud work?
  
• How card testing fraud affects businesses and customers
  
• Signs of card testing fraud attacks
  
• How to protect your business against card testing fraud
  
• How to respond to card testing fraud attacks
  

How does card testing fraud work?

Card testing fraud operates through a relatively simple process. Fraudulent actors get stolen card numbers, test them to make sure they work, and then use them. Here’s more detail about how this unfolds:

• Fraudulent actors acquire stolen credit card numbers: The process begins when fraudulent actors acquire stolen credit card numbers. These can be sourced from various means such as data breaches or phishing scams or purchased from dark web marketplaces. Once in possession of these numbers, the perpetrators initiate the testing phase.

• They test the cards: The testing phase involves making small-value transactions on websites. These transactions usually go unnoticed by typical fraud detection mechanisms, which are more attuned to spotting large or unusual purchases. The fraudulent actors often target sites known for micro transactions, such as those selling digital services or small charitable donations, because these platforms are less likely to have stringent fraud detection measures.

• They confirm which cards are active: The key for fraudulent actors is to confirm the credit card is active and not yet reported as stolen. They observe whether these small transactions go through successfully, and if a transaction is approved, it signals the card is still operational. On websites where additional information such as billing addresses is not strictly verified, this process becomes easier.

• They use viable cards to make fraudulent purchases: Once a card is verified, it becomes more valuable. The fraudulent actor can now confidently use it for larger, unauthorised purchases or sell the card details to others. There’s a substantial illegal market demand for credit card numbers that have been verified as active and usable.

The ease of this fraud method lies in its simplicity and the digital nature of the transactions, letting perpetrators operate from anywhere. This widespread issue poses a challenge for businesses and financial institutions – they must stay ahead of attacks with advanced monitoring and strategies to detect and prevent such fraudulent activities, thereby protecting their customers and maintaining trust.

How card testing fraud affects businesses and customers

Card testing fraud affects customers and poses a range of challenges for businesses. Though it’s probably fairly obvious how these attacks might affect victims, here’s a breakdown of where the damage is most often experienced:

Impact on businesses

• Financial losses: Unauthorised transactions can lead to direct financial losses. Businesses bear the cost of chargebacks when customers dispute fraudulent charges.

• Increased operational costs: Dealing with fraud requires resources, increasing operational costs. Implementing and maintaining advanced fraud detection systems also adds to expenses.

• Reputational damage: Frequent fraud incidents can damage a business’s reputation. Loss of customer trust can lead to reduced sales and client retention issues.

• Increased scrutiny from card issuers and processors: High levels of fraud can lead to increased scrutiny and sanctions from credit card issuers and processors. This might result in higher processing fees or, in extreme cases, loss of the ability to process credit card payments.

Impact on customers

• Financial inconvenience: Victims of card testing fraud face the hassle of disputing charges and getting new cards issued. Though customers are typically not liable for fraudulent charges, resolving these issues can be time-consuming.

• Privacy concerns: The realisation that one’s card details have been stolen and misused can cause anxiety about privacy and security.

• Potential for greater financial harm: Though card testing involves small amounts, it can be a precursor to larger unauthorised transactions. Once card details are verified as active, they can be used for more substantial fraud or sold on the illegal market.

• Impact on credit score: In some cases, prolonged unnoticed fraudulent activities can affect a customer’s credit score. Resolving these issues with credit bureaus can be a lengthy process.

Signs of card-testing fraud attacks

Recognising and responding to card-testing attacks is important for businesses to protect themselves and their customers. Being aware of the signs and implementing effective monitoring systems are key steps in this process. Here are some indicators that your business might have been affected by this type of attack:

• Multiple small transactions: A series of small-value transactions, often in quick succession, can be a strong indicator of card testing. These are typically amounts low enough to avoid detection.

• Use of multiple cards: If there are multiple attempts to use different card numbers from the same IP address or device, this is a red flag. It suggests that someone is testing a batch of card numbers.

• Failed transactions: A high number of declined transactions can also signal card testing because fraudulent actors often use invalid or expired card numbers.

• Inconsistent billing information: Transactions in which the billing information provided does not match the card details can indicate fraudulent activity.

Recognising the signs of card testing and implementing effective monitoring systems can help businesses defend against these attacks. These steps protect businesses' financial interests and safeguard their customers' trust and personal information. It's about creating a safe transaction environment, staying vigilant and continually adapting to new fraud tactics.

How to protect your business against card-testing fraud

Protecting your business against card-testing attacks involves a blend of effective security measures, advanced tools and best practices in payment processing. These strategies are designed to identify and mitigate the risk of fraudulent activities while allowing for a smooth experience for legitimate customers.

Effective security measures and tools

• Using an address verification service (AVS): AVS – sometimes referred to as address verification system – compares the billing address provided by the user with the one on file with the credit card company. Inconsistencies can flag potential fraud.

• Implementing card verification value (CVV) checks: Requiring the CVV for transactions helps make sure that the person making the purchase has physical access to the card, thereby reducing the risk of fraudulent use of card numbers obtained online.

• Setting transaction limits: Establish limits for the number of transactions or the total amount allowed per card within a certain timeframe. This can prevent multiple fraudulent attempts.

• Installing advanced fraud detection tools: Invest in tools that use machine learning and artificial intelligence to analyse transaction patterns and to flag anomalies that are indicative of card testing.

• Employing multi-factor authentication: For transactions that appear suspicious, implementing an additional layer of authentication can deter fraudulent actors.

Best practices in payment processing

• Monitor and analyse transaction patterns: Regularly review transaction data for patterns typical of card testing, such as several small transactions in a short period of time.

• Update and upgrade security systems regularly: Stay ahead of fraudulent actors by continually updating and upgrading security protocols and software.

• Educate your team: Make sure your staff are aware of the signs of card testing and know how to respond appropriately.

• Maintain Payment Card Industry Data Security Standard (PCI DSS) compliance:
  Adhering to the PCI DSS is key in ensuring that payment processing systems are secure.

• Transparent communication with customers: Keep customers informed about security measures and encourage them to report any suspicious activity related to their transactions.

Implementing monitoring systems for early detection

Implementing thorough monitoring systems is important for early detection of card testing. These systems should be capable of:

• Analysing transaction patterns: Monitoring software should be able to identify patterns typical of card testing, such as a quick succession of small transactions.

• Flagging suspicious activity: Systems should automatically flag transactions that meet certain criteria, such as multiple failed attempts or inconsistent billing information.

• Real-time alerts: Having real-time alerts allows for immediate action when potential card testing is detected. This prompt response can prevent further unauthorised transactions.

• Customisable parameters: Every business is different, and so are the types of transaction that they process. The monitoring system should allow for customisation to suit specific business needs and transaction profiles.

• Integration with fraud prevention tools: Integrating monitoring systems with broader fraud prevention tools, such as CVV and AVS checks, can provide a more comprehensive defence against card testing and other forms of fraud.

By combining these security measures and best practices, businesses can create a more secure environment that deters card-testing fraud. Staying vigilant and adapting to new threats as they arise can help safeguard your business and maintain the trust of your customers.

How to respond to card-testing fraud attacks

Responding effectively to suspected card testing incidents is important for businesses to minimise damage and recover quickly. When card-testing fraud is detected, businesses should follow specific steps and procedures.

Steps to take when card-testing fraud is detected

• Immediate transaction review and freezing: As soon as card testing is suspected, review the transactions in question. Freeze any ongoing transactions related to the suspected fraud to prevent further unauthorised activity.

• Enhanced verification for suspicious transactions: If some transactions raise suspicion but aren't conclusively fraudulent, implement enhanced verification processes. This might include contacting the customer for confirmation or requiring additional authentication.

• Analysis of transaction patterns: Conduct a thorough analysis of the transaction patterns to learn the scope and method of the attack. This helps in identifying the source and potential weaknesses in the system.

• Adjustment of fraud detection parameters: Based on the analysis, adjust your fraud detection parameters to be more sensitive to the kind of activity observed during the incident. This could involve tightening transaction limits or modifying alert triggers.

Reporting procedures and recovery actions for affected businesses

• Notifying financial institutions and card processors: Immediately inform your financial partners, including banks and card processors, about the incident. They can help monitor for further suspicious activity and take any necessary action on their end.

• Reporting to law enforcement: In cases of large-scale fraud, reporting to law enforcement is advisable. Authorities can initiate an investigation and work towards apprehending the perpetrators.

• Engaging with cybersecurity professionals: If the attack is sophisticated or if there are concerns about system vulnerabilities, engaging with cybersecurity experts can help identify how the attack happened and how to prevent incidents.

• Customer communication and support: Communicate with affected customers transparently. Inform them about the incident and advise them on the steps that they should take, such as monitoring their credit reports or replacing their cards.

• Review and strengthen security measures: Post-incident, conduct a comprehensive review of your security measures. Strengthening your defences might involve updating software, revising protocols or training staff on new security practices.

• Learning and adapting from the incident: Use the incident as a learning opportunity. Analyse what happened, what was effective in your response and where improvements are needed. Adapt your strategies accordingly to better prepare for threats.

Learn more about how Stripe helps protect businesses against card testing fraud.