Card Testing By Fraudsters Is Up 200 Percent This Year

By Tom GroenFeldt

Credit card testing, a tactic used by fraudsters to test stolen credit card numbers with small incremental purchases before making large-dollar purchases on the card, is up 200 percent in the first four months of 2017 compared to the same period last year, according to a report from Radial’s eCommerce Fraud Technology Lab. Fraud also is up 30 percent year over year, the e-commerce company said.

"Our data adds another alarming statistic for retailers who may be unprepared to manage fraud activity in e-commerce,” said Stefan Weitz, chief product and strategy officer at Radial.

 “We know fraudsters won’t stop looking for opportunities to monetize their stolen data and will even automate this process once they have a card that appears to be working. This results in quick, large-volume purchases that leave retailers vulnerable.  When retailers miss card testing, they’re contributing to future card attacks. Fighting card testing is complicated but can stop millions of unanticipated fraud attacks if tracked and managed efficiently.”

Fraudsters are after anything that can be sold easily, from electronics to higher-end clothing, he said.
Weitz said he talked to one retailer in the third quarter last year and the merchant had been ignored by fraudsters. That changed in the fourth quarter when he was targeted repeatedly.

“He said he didn’t know what happened, but he went from not being bothered to being a pretty easy target. Some retailers and brands likely took a nontrivial hit on chargebacks and lost merchandise. We saw tens of thousands of dollars a day some of our merchants could have lost if we hadn’t caught the fraud.”

Radial had seen testing drop off somewhat since mid-March, which he thinks is because their systems have caused fraudsters to take their attacks elsewhere.

E-commerce fraud-prevention specialists such as Radial, Forter, Klarna and Signifyd have developed sophisticated tools to identify and stop fraud; they offer guarantees of online sales in return for a fee of around 50 basis points, depending on volumes. They invest heavily in technology and benefit from a view across a broad range of transactions, so they can see trends in fraud that many retailers don’t have access to.

The fraud landscape is rapidly changing and presents pervasive and growing threats for eCommerce merchants. Radial’s Fraud Technology Lab and a team of data scientists use their robust fraud platform to uncover how trends in fraud can drive down retailers’ bottom lines and increase their risk.
E-commerce retailers face two threats in fraud. The first is sending out valuable merchandise to a fake account. The second is turning down good business because they can’t be sure the customer is legit, missing a sale and antagonizing a customer.

Weitz said their systems had stopped a $9,000 order from overseas where the billing address didn’t match the shipping address. It was directed to manual review and the Radial team saw it was a repeat customer with two homes who had submitted good orders in the past. They approved it.

“Merchants who use simple tools or have in-house fraud teams will decline more of those,” he said. “That customer, who was spending $9,000 in a single day, would have been very dissatisfied. If you ratchet back and decline good orders, your top-line revenue will decline."

A giant like Amazon can manage fraud in-house; smaller retailers may struggle to avoid the traps of actual fraud or turning down good sales, because they don’t trust the payment information. Third-party fraud-prevention companies also benefit from seeing fraud patterns as they develop across a range of businesses, and they can build up data resources that a single retailer can’t match.

For example, according to Radial’s analyses, since August 2016, the market segments of electronics, entertainment, jewelry, and sporting goods experienced the highest increases in online fraud during the 2016 peak season.

“More retailers claim they are combatting fraud, but underestimate the other areas they’re endangering – like revenue and customer loyalty,” said Radial’s Weitz.