What is Card Testing Fraud and How to Protect Your Business

Payment fraud continues to pose a significant threat to businesses. E-commerce fraud is expected to rise from $44.3 billion in 2024 to $107 billion in 2029, growing by 141% over that period. Research shows that nearly 90% of businesses saw up to 9% of revenue lost due to fraud. 

One of the most prevalent methods of payment fraud is card testing—when fraudsters use stolen credit cards for small transactions to test their validity. If the card is validated through these minor purchases, it can then be utilized for larger fraudulent transactions or sold on illicit forums. This can result in considerable financial repercussions for businesses, including chargebacks and associated fees, lost sales, and an overall negative impact on their financial health.

What is Card Testing?

Card testing, also known as carding or card testing attacks, is a type of payment fraud in which fraudsters exploit stolen credit card information to verify the validity of the cards by conducting a series of small transactions. Typically, these transactions are minor, often less than $1, to avoid detection. Once the card is confirmed to be active, the fraudster can proceed to make larger purchases or sell the verified card information on criminal forums or the dark web. This method enables criminals to ensure that the card details are still valid and can be used for significant purchases later on.

Automated card testing attacks allow fraudsters to rapidly test a large volume of cards, significantly increasing their efficiency and reach. The impact on businesses can be substantial, including financial losses from chargebacks, lost sales, and additional fees associated with these unauthorized transactions. 

For example, a fraudster may obtain a list of stolen credit card numbers and run a series of small transactions to verify which card numbers are still active. Once verified, the legitimate cardholder disputes these transactions, leading to chargebacks. Consequently, the business incurs financial losses not only due to the chargebacks themselves but also from the associated fees, ultimately impacting their revenue and operational costs.

How Does Card Testing Impact Businesses?

The effects of card testing on businesses are far-reaching, encompassing financial, operational, and reputational damage. Below are some of the key ways in which card testing impacts businesses:

• Financial Losses: Unauthorized transactions directly lead to financial losses. Businesses often bear the cost of chargebacks when customers dispute fraudulent charges, which can result in substantial financial strain, especially for small to medium-sized enterprises without robust fraud protection measures.
• Increased Operational Overhead: Dealing with fraud requires significant resources, increasing operational costs. Businesses need to implement and maintain advanced fraud detection systems, which can be expensive. Additionally, investigating fraudulent transactions, handling disputes, and processing refunds strain customer service and administrative teams.
• Reputational Damage: Frequent fraud incidents can severely damage a business’s reputation. Customers expect secure payment transactions, and repeated fraud can erode trust, leading to dissatisfied customers and a tarnished brand image. Over time, this loss of confidence can result in decreased sales and drive loyal customers to competitors, affecting long-term revenue and market position.
• Increased Scrutiny: High levels of fraud can attract increased scrutiny from credit card issuers and processors. Companies experiencing frequent fraudulent activity may face heightened oversight and more stringent compliance requirements. This can result in higher processing fees or, in extreme cases, the loss of the ability to process credit card payments.

How to Prevent Card Testing Fraud

Card testing can be difficult to detect because the purchases are often small and can go unnoticed by the cardholder. However, businesses can prevent card testing by using fraud detection tools that analyze transaction patterns and detect risky behavior.

• Use Advanced Fraud Detection: Implement AI-based fraud detection systems that adapt with each transaction to identify emerging fraud patterns. Leverage risk-scoring tools to review transactions instantly, using predictive modeling and cross-referencing global fraud databases. Use behavior tracking tools to establish a baseline and quickly identify deviations to block suspicious transactions.
• Strengthen Authentication Processes: Enhance login security with multi-factor authentication (MFA) to reduce the risk of unauthorized access. Use device data, such as browser settings, operating system, and hardware details, to identify unusual activities and effectively prevent fraud.
• Tap into Automation: Utilize advanced machine learning and robust automation to detect suspicious activity in real-time, before it impacts your bottom line. Automate fraud detection processes to minimize manual reviews, saving time and reducing operational costs.

How to Report Credit Card Fraud as a Merchant

If you suspect that your business has encountered credit card fraud, there are steps you can take to mitigate the damage. 

1. Contact the Credit Card Issuer: Contact the bank or credit card issuer involved in the fraudulent transaction. Report the fraud so the issuer is aware of the incident and to aid the dispute process.
2. Review Your Transaction Records: Gather all information related to the card testing attack through your transaction records, including the transaction date, the amount, and details about the customer. You may be able to identify patterns or anomalies that could identify the fraudster. 
3. Notify Your Payment Processor: Inform your payment gateway or processor about the fraudulent transaction. They will likely have processes for dealing with such issues. 
4. Alert Your Customers: Transparency is key in credit card fraud and card testing attacks. Your customers will want to know that a potential data breach has occurred so they can act accordingly and check their own payment records. 
5. Implement Fraud Prevention: Take measures to prevent future card testing attacks and credit card fraud. This is easiest through a payment protection platform like Sift that has decades of pattern recognition and experience in dealing with fraudulent transactions and fraudsters. 

How Sift Helps Businesses Prevent Card Testing

Sift’s payment fraud prevention solution effectively detects and prevents card testing activities by leveraging machine learning models and real-time data analysis. Sift assists businesses by identifying and blocking card testing attacks before they cause significant harm. This protection is achieved in the Sift Console with:

• Risk scoring, manifesting as a number between 0 (perceived very safe) to 100 (perceived very risky).
• Automation, known as Workflows, where businesses can configure simple or advanced rules to determine outcomes. For instance, “If the Sift score is >80, block the transaction.”
• Review queues, where fraud analysts can inspect suspicious transactions and take actions such as blocking transactions or accounts.

Sift provides key features to prevent card testing, including:

• Real-time Fraud Detection: Sift’s machine learning models analyze transaction data to identify card testing patterns.
• Comprehensive Data Analysis: Sift uses diverse data points, such as device fingerprints, user behavior, and payment information, to assess transaction risk.
• Customizable Workflows: Businesses can create custom workflows to respond to high-risk activities dynamically.
  

Join successful platforms like Turo, Patreon, and DoorDash that trust Sift to protect their businesses against all kinds of payment fraud. Our comprehensive solution not only detects and prevents fraud but also helps you maintain a seamless user experience.

Get our card testing guide or schedule a time to get a full demo of Sift.