Credit card fraud is big business, and one type of such criminal activity – bot fraud – is rapidly getting worse.
Bot-focused fraud attacks surged in 2024, doubling between January and June, according to Experian’s State of Credit Card Report. Worldwide, losses during that period were estimated at $48 billion.
Experian says that its subsidiary NeuroID analyzed one company and found that fraud bots accounted for nearly one-third of the firm’s business volume in a single day. Bots give fraudsters a significant advantage by enabling them to act quickly and at scale, often outpacing traditional security measures and gaining unfair benefits over legitimate users.
As bot fraud explodes, understanding this type of crime – and the steps you can take to prevent it – is crucial to keeping your credit card accounts and your personal information safe, as bot fraud can cause significant harm to both individuals and businesses.
What is bot fraud, and how does it threaten your credit card?
Bots are automated software applications that perform repetitive tasks over a computer network. Their behavior is dictated by the code they run, which determines whether they are beneficial or malicious.
This activity is widespread on the internet. According to the Department of Homeland Security, research shows that over 37% of all internet traffic is generated by bots rather than real people.
Bots imitate human actions and can either assist users or cause harm. Malicious bots are specifically created to commit fraud and other damaging activities such as account takeovers, web scraping, click fraud, and inventory hoarding. These fraud bots aim to defraud companies and users by stealing money or personal identities.
Understanding bot fraud
Bot fraud is often used to deceive individuals into taking actions that facilitate criminals in executing their schemes. These tactics manipulate both users and digital systems, making it easier for scammers to achieve their fraudulent objectives.
Some common types of bot fraud include:
Spam bots: These bots often scrape email addresses and try to fool users into clicking on phishing emails, which frequently contain malicious links that can compromise user security.
Credential-stealing bots: These bots rely on stolen usernames and passwords to try to access financial accounts. In other instances, these bots may use techniques to crack passwords and gain entry into accounts.
AI-generated bots: Artificial intelligence is now being used to create audio and video of celebrities and others in an attempt to get unsuspecting people to part with their money. Scammers increasingly use these AI-generated bots to deceive individuals and organizations.
What is carding fraud and how are bots involved?
Carding occurs when a criminal obtains or uses credit card information without your knowledge or approval. Financial institutions are often targeted by these schemes, as fraudsters exploit their systems to gain unauthorized access.
Thieves frequently use carding to purchase gift cards or prepaid cards, or employ bots to validate credit card information before leveraging the details to commit further crimes or sell the data to organized crime rings. The ultimate goal of these activities is financial gain.
Bots play a crucial role in carding. Fraudsters use carding bots to verify stolen credit card information they acquire. A bot will make a small charge on a website to confirm if the card is active and usable. These attacks can also be used to steal sensitive data from compromised accounts.
Additionally, bots enable large-scale fraudulent purchases using stolen credit card information. Thanks to bots, criminals can execute multiple transactions across various websites in a very short time frame.
To evade detection, thieves program bots to mimic the behavior of a real person, helping the bot bypass fraud-detection systems effectively.
Why credit cards are prime targets
Fraudsters target credit cards because bots can test large numbers of cards quickly, and on a scale that no human can match. Bots can also be used to create new accounts with stolen credentials, enabling further fraudulent activities.
This gives a thief many more options for bilking people out of their hard-earned cash, and these activities can lead to significant financial losses for both individuals and businesses.
➤ SEE MORE:6 common types of credit card fraud and how to avoid them
How scam bots operate behind the scenes
Bots can quietly attack your credit card account and make fraudulent purchases before you even notice. Bots often exploit vulnerabilities in online systems to carry out their attacks.
It can be helpful to understand how bots perform their nefarious tasks, as they typically establish a connection to your account or device. Ensuring a secure connection is crucial to preventing unauthorized bot activity.
Carding bots and automated fraud explained
Prior to a carding bot attack, a thief typically purchases a list of stolen credit card numbers from a criminal marketplace. Or, the fraudster might directly attack a website in hopes of obtaining such information. These stolen credit card numbers are often sourced from compromised databases.
Once a crook has this information in hand, the thief deploys a carding bot to identify active credit cards that can be exploited for fraudulent purchases. The ultimate victims are the individuals whose card data is misused in these schemes.
How bots test stolen card data
Bots use stolen credit card information to try to quietly make small purchases at multiple sites. The goal is to test the card to make sure it is active, and to do so in a way that will not trigger a fraud alert and that the card’s user is unlikely to notice. Bots may also attempt to access user accounts associated with the cards, using stolen or guessed credentials to commit further fraud.
Thousands of tests may be performed until the bot gets valid details associated with a credit card account, but security systems can block suspicious activity to prevent further fraud.
Evading detection with human-like behavior
Bot technology has evolved and become more sophisticated over time. Today, advanced bots avoid detection by employing mouse movements, click patterns, and other behaviors that mimic the behaviors of people. These advanced bots are specifically designed to replicate user behavior patterns, such as typing speed and browsing habits, to avoid detection.
This can help foil the fraud detection efforts of both humans and some types of software.
The rise of artificial intelligence will likely make defending against bot attacks even more challenging. AI can help bots learn from failed attacks and adjust their approach in real time so they can be more successful.
In fact, there is a bit of an “arms race” between those who employ bots and agents determined to detect bot activity. As thieves update the tactics they use when employing bots, those defending against such attacks must try to keep one step ahead. Security teams increasingly rely on behavioral analytics and machine learning to identify patterns in user activity that indicate bot behavior.
The role of proxies and IP rotation
A proxy serves as a type of “middleman” that helps facilitate connections between users and websites. Proxy services are commonly used by bots to mask their identity and evade detection by security services that protect digital platforms from malicious threats.
Because of their role as intermediaries, proxies can be used to mask the bot’s identity and its actual IP address. In addition, fraudsters can use IP rotation to dynamically change a bot’s IP address each time the bot makes a request, or at prescheduled intervals. However, suspicious proxy activity can result in the bot being blocked by security systems designed to detect and prevent unauthorized or automated access.
➤ SEE MORE:Essential credit card alerts for better money management
The real-world impact of bot fraud on users and businesses
Bot fraud is far from harmless. This type of criminal activity can impact both consumers and businesses in many ways, including:
Financial losses and chargebacks
When bots are used to commit fraud, it eventually leads to chargebacks after the consumer notices what has happened and disputes the charges. These chargebacks can result in financial losses for the business, with credit card processors often assessing chargeback penalties. Bot attacks are a leading cause of financial losses for businesses, as they can result in significant operational disruptions and damage to reputation.
A study by LexisNexis Risk Solutions found that for every $1 that is lost in fraud, financial services companies average $5.75 in losses. Fraudulent new account creation is a major contributor to these losses, as bots can exploit registration systems to create fake accounts that are later used for fraudulent transactions.
Reputation damage and customer trust
When a bot hijacks a customer’s account, the account owner often becomes distressed and angry. Maintaining customer confidence is crucial for businesses, as it helps preserve trust and loyalty. Account takeovers can result in identity theft, further damaging trust and putting customer assets at risk. A 2022 FICO survey found that one in four customers say they would switch banks if they were dissatisfied with the institution’s response to a fraud incident.
Whenever a company is the victim of bot fraud that hurts consumers, the company’s reputation takes a hit.
Regulatory and legal consequences
The Computer Fraud and Abuse Act (CFAA) became law in 1986. Initially aimed at fighting hacking, it has been amended many times to address other computer-related crimes. Among other things, it prohibits anyone from intentionally accessing a computer without authorization to do so. Gaining unauthorized access to accounts is a violation of this law, and account takeovers are a common form of this type of cybercrime.
Penalties for defrauding others by means of electronic communications can range from fines to up to 20 years in prison.
➤ SEE MORE:Would you trust your credit card with an AI shopper?
How credit card consumers can protect themselves
Protecting your credit card and personal information from carding bots and other fraudulent activities is essential in today’s digital world. Here are some key ways consumers can safeguard themselves against bot fraud and related threats:
Use strong, unique passwords and enable multifactor authentication
Creating strong, unique passwords for your financial accounts makes it harder for fraud bots to gain unauthorized access. Avoid reusing passwords across multiple sites. Whenever possible, enable multifactor authentication (MFA), which requires additional verification beyond just a password, adding an effective layer of security.
Monitor your accounts regularly
Regularly check your credit card statements and online accounts for any suspicious or unauthorized transactions. Early detection of fraudulent activity can help you report and resolve issues before significant damage occurs.
Be wary of phishing attempts and suspicious links
Fraudsters often use spam bots to send phishing emails or messages containing malicious links designed to steal sensitive data. Avoid clicking on links or downloading attachments from unknown or untrusted sources. Always verify the sender’s authenticity before providing personal information.
Use secure connections and trusted devices
Avoid accessing your credit card accounts over public or unsecured Wi-Fi networks. Use trusted devices and secure internet connections to reduce the risk of interception by malicious bots or hackers.
Keep software and apps updated
Ensure your devices, apps, and security software are up to date with the latest patches and updates. Updates often include important security fixes that protect against malware and bot attacks.
Set up account alerts
Many financial institutions offer alerts via email or text message for transactions or login attempts. Setting up these notifications provides real-time insights into account activity and can quickly alert you to potential fraud.
Limit sharing of personal information
Be cautious about sharing your credit card information or personal details online or over the phone unless you are certain of the recipient’s legitimacy. Sharing less information reduces the chances of fraudsters obtaining data to use in carding or identity theft.
Use virtual credit cards or payment apps
Some banks and payment apps offer virtual credit card numbers or tokenized payments that can be used for online purchases. These methods mask your real card details, making it harder for bots to misuse your information.
By adopting these precautions, credit card consumers can significantly reduce their risk of falling victim to carding bots and other forms of bot fraud, helping to protect their financial well-being and personal data.
Bottom line
Bot fraud is a major threat to the security of your credit card account. Fortunately, companies and consumers can each take proactive steps to reduce this type of fraud and keep both money and personal information from falling into the hands of criminals. By staying informed, adopting strong security practices, and leveraging advanced detection technologies, we can all play a part in outsmarting fraudsters and protecting our financial future.
