Why "Card Testing Fraud" Is Becoming a Major Threat to E-Commerce Businesses

Credit card and banking information is one of the major targets for data breaches and other cyber attacks. These details are sold on the black market and cost businesses and consumers billions in losses every year.

Victims who learn early about stolen information typically take measures to prevent future use, such as canceling cards and changing online passwords. However, data breach notices are easy to miss, and countless active cards remain for sale on the dark web.

Cybercriminals are constantly searching for methods to quickly find which stolen card information is viable for their schemes. Card testing fraud is an emerging, low-risk method for them to do so.

What Is Card Testing Fraud?

Card testing fraud is a tactic for checking whether stolen card details are still active. Cybercriminals start by using the information for microtransactions, typically under five dollars. These small purchases are less likely to trigger red flags and alert the credit card provider.

This practice damages consumers' credit standing as the fraudster progressively makes larger purchases. However, it also harms businesses by forcing them into large-scale refunds and causing them to lose their reputation.

How Card Testing Fraud Works

Card testing fraud is a multi-step process that requires automated software and access to dark web financial information.

Step 1 – Obtaining Stolen Card Information

Events like data breaches, fake websites, and phishing scams allow criminals to compile massive lists of consumer card details. Fraudsters buy these lists on the dark web, creating a database of credit cards to test.

It isn't rare to hear news about recent data breaches, and even large companies with substantial cybersecurity resources fall victim. The 2019, Capital One lost information on over 100 million customers.

Step 2 – Testing the Card with Small Transactions

Fraudsters use these card detail lists and conduct low-value transactions. They often test using small businesses or charities that lack sophisticated fraud detection tools. This method allows criminals to test if a card is still active without alerting the card owner or card company.

Many stolen card databases include thousands or tens of thousands of cards. They are too vast to check each card manually. Cybercriminals often turn to automated scripts or bots that systematically test cards, allowing them to cause massive damage in minutes.

Step 3 – Scaling Up Fraudulent Transactions

The previous step filters out inactive cards from the dark web databases. These cards are disabled by card owners who were notified correctly by the breached organization or the card company itself.

The remaining cards are used to make progressively higher-value purchases, leading to severe damage. Commonly purchased items are electronics, travel bookings, and even straight cash withdrawals.

Careful criminals can continue using active cards for months or years without getting caught. So, it is essential that card owners routinely check their card charges and take other steps to protect themselves.

Why Card Testing Fraud Is on the Rise

Card testing fraud is a comparatively new strategy. It better uses already existing card detail databases and profits from the increasingly large online marketplace.

Growth of E-Commerce and Digital Payments

Due to the increased number of online vendors, more transactions are occurring digitally. This trend provides more opportunities for fraudsters to test card details. Increasing e-commerce activity also makes it easier for small-scale fraudulent purchases to hide behind millions of other transactions.

Additionally, mobile checkout, one-tap payment, and digital wallets require lower consumer verification. The rapid adoption of these payment methods makes it hard for businesses to update their cybersecurity standards to match these gaps.

Automated Bots and Advanced Fraud Techniques

Advanced bots and scripts are becoming more widely available. These tools can test tens of thousands of stolen card details in a short period. This speed makes card testing fraud viable, as it would have previously required several decades for a human to test a similar bulk.

Sophisticated bots can even mimic human activity to bypass artificial intelligence-powered security measures that detect computer habits. These bots can also be updated quickly to adapt to a changing security landscape. This flexibility means that more criminals are willing to adopt this strategy due to its perceived longevity.

Weak Security Measures on Some E-Commerce Sites

It is not fair to say that e-commerce websites are unwilling to invest in cybersecurity. Many of these online businesses are small, one-person operations. Services like Shopify make it easy for anyone to set up digital transactions.

However, these small businesses are not equipped with the knowledge to maintain robust fraud detection mechanisms. They are prime targets for card testing fraud and do not have the resources to invest in anything beyond basic payment processing systems that are easily exploitable.

The Impact on E-Commerce Businesses

Card testing fraud is a frightening threat because it is difficult to catch and causes long-term damage. Some of the ways it hurts e-commerce businesses include:

Chargebacks and Financial Losses

The most immediate financial loss from card testing fraud is the chargebacks. Chargebacks occur when card owners dispute the charges, causing the credit company to reverse the payments at the business' expense.

Losses are not limited to the product's value. Chargeback fees are incurred per disputed transaction and, in some cases, result in additional penalties from the payment processor. All this doesn't even account for the lost resources spent on processing transactions and issuing refunds.

Reputation Damage and Customer Trust Issues

In a way, fraudsters initiate the consumer's first interaction with an e-commerce site. The card owner sees fraudulent charges accepted by the business, and it immediately paints a negative impression on their mind.

Customers expect secure transactions. Allowing card-testing fraud damages their trust in a business's professionalism. Because of one bad interaction, they may turn to competitors with perceived stronger security measures.

Singular customer experiences can extend to the rest of the client base. Negative reviews and social media posts can cause even established customers to go elsewhere.

Increased Fraud Prevention Costs

Combatting card testing fraud is expensive. Businesses must invest in preventative systems that are sophisticated enough to track small-scale transactions.

For example, a business might rely on AI software to detect bot activity and implement address verification systems to cross-reference customer billing addresses with bank records.

Additionally, there are maintenance expenses, as businesses must ensure their cybersecurity protocols stay updated through security audits and transaction monitoring. This may come in the form of new hires or extra hours from a sole proprietor.

How E-Commerce Businesses Can Prevent Card Testing Fraud

As card testing fraud becomes more prevalent, e-commerce businesses must integrate tools and security processes with it in mind.

Implement Stronger Payment Security Measures

E-commerce businesses should implement payment-focused security measures to prevent losses. Some operations have strong data security but neglect vetting financial interactions.

Some of the most effective countermeasures to bot-enabled card testing are authentication mechanisms and multi-factor authentication (MFA). These services require the consumer to verify that they are human by passing a test, such as matching pictures to a theme or accurately checking a box.

Authentication mechanisms test not only the provided answers but also aspects like mouse movements and reaction speed. Users must follow human patterns to continue with their transactions.

• 3D Secure: A MFA method that directs customers to their bank's login service or sends a code to a connected device. Typical implementations include card services like Visa Secure or Mastercard Identity Check.
• CAPTCHA: Tool requiring users to solve simple puzzles such as letter recognition or object correlation. Automated tools struggle to complete these tests organically, making bots easier to detect.

Many business owners worry that adding another layer of protection may prevent consumers from completing a transaction. However, both 3D Secure and CAPTCHA are relatively quick and painless methods to prevent card testing fraud.

Lastly, address verification services and card verification value checks must be included in your payment processing tools. These add an extra layer of protection by ensuring the person using the card is the actual owner without putting an additional burden on the consumer.

Monitor for Unusual Transaction Patterns with AI Tools

Tracking transaction patterns can reveal bots. While this sounds labor intensive, various tools, such as SEON, automatically detect unusual user behaviors related to known fraudulent strategies, including card testing.

These tools utilize artificial intelligence and machine learning to understand fraudulent processes. In card testing's case, the process always starts with small purchases, typically the least expensive offerings on the e-commerce website.

The model learns to look out for successive low-value purchases from different cards originating from one IP address.

Additionally, the fraudster's bot is probably checking multiple cards on one website, many of which will fail to process. This means that security bots know to flag IP addresses with an unusual number of failed payment attempts.

Transaction tracking tools can create automated alerts to notify administrators when potential bad actors appear. This ensures a quicker response time, allowing human employees to decide whether the result was a false flag.

Limit the Number of Failed Payment Attempts

Fraudsters do not know which cards are still active, so failed payment attempts are inevitable. Setting a limit to the number of failed payment attempts allowed from a user or IP address in a session can quickly shut down less sophisticated bots.

Stolen card databases are hundreds to thousands of entries long. A business limiting failed payments can stop the bot on the fourth or fifth attempt. This method forces the fraudster to find a different, less protected website to test cards against.

Regularly Update Security Protocols

Cybercrime is a rapidly growing and adaptive industry. Security protocols that work one day can become useless the next, so administrators have to stay vigilant and regularly update their systems.

Businesses can only know what needs improvement if they probe their defenses. Running regular security audits identifies weaknesses in preventative measures and allows administrators to take action before the worst occurs.

The absolute minimum a business should do is keep up with service updates. Security plugins and third-party services will do a lot of the heavy lifting for their clients and offer regular patches to contend with new cybercrime trends, such as newer encryption standards and authentication methods.