Card testing is currently viewed as an effective tactic. Based on a study by Radial, a King of Prussia, Pa.-based omnichannel technology provider, during the 1st quarter of 2017, credit card testing grew two-fold as compared to the same period in 2016.
According to Michael Graff, risk analytics manager for Radial, for fraudsters, turning a profit is associated with finding card accounts that can be used to purchase items that can be turned into cash.
Criminals mainly focus on consumer electronics, gift cards, sporting goods, and jewelry. However, as Graff notes, criminals will target any merchant segment carrying merchandise they think they can resell.
Though criminals favor e-commerce merchants for card testing because there aren’t too many barriers in the card-not-present environment to fraud, card testing is increasingly creating more problem among charities.
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Chargebacks and False Positives
Chargebacks that are caused by card testing can’t just drive up merchants’ interchange fees; they also cause damage to their brand. Consumers who are victims of card tests, as a rule, have a negative opinion of the merchant’s ability to detect and prevent fraud. This can make them take their business elsewhere, as Graff notes. By 2020, e-commerce is anticipated to lose $31 billion to chargebacks.
Graff adds that even if a consumer doesn’t shop with the merchant, he/she can spread a negative opinion of the merchant to others through word of mouth or on social media.
It’s not easy to fight test transactions. When it comes to false positives, to avoid them, Graff recommends merchants to supplement fraud-detection technologies and have human-risk analysts who would review transactions that may fall into the gray area between fraudulent and non-fraudulent transactions.
According to Julie Conroy, research director for Boston-based Aite Group, false positives across all merchant categories in the US made up $264 billion in 2016. The approval rate for card-not-present transactions is 80% – 85%, compared to 97% associated with card-present transactions.
As of 2016, actual fraud losses reached almost 7% of the total cost of fraud and fraud management in the e-commerce business. Dollars lost to false positives made up 19%, according to a study by Javelin Strategy & Research, a research-based advisory firm. Fraud-fighting tools and personnel represented the remaining 74%.
The overall costs attributed to chargebacks, false positives, and fraud management were taking 7.6% of total e-commerce revenue, based on the mentioned study. False positives alone made up 2.8% of that revenue. The research involved 500 e-commerce merchants with $1 million or more annual revenue. By contrast, the toll from chargebacks reached 0.52%.