A detailed analysis of the impact of carding on the small business economy

[Student]

Carding is a form of cyber fraud in which attackers use stolen bank card information to conduct unauthorized transactions, often for the purpose of card validation or direct purchase of goods and services. This type of fraud is particularly dangerous for small businesses, which, unlike large corporations, often lack the resources to effectively protect and recover from attacks. For educational purposes, we will examine the impact of carding on small businesses in terms of economic, operational, and reputational consequences, and propose damage mitigation strategies. We will provide context based on global and Russian realities, taking into account statistics and examples.

1. What is carding and why does it threaten small businesses?​

Carding involves stealing credit or debit card information (number, CVV, expiration date) through phishing, skimming, data breaches, or black market purchases. Fraudsters use this information to:

• Card testing: Performing small transactions (from $0.01 to $10) to verify card validity. Small businesses, especially e-commerce businesses, are often targeted due to weak security systems.
• Direct fraud: Purchase of goods or services for subsequent resale (product carding).
• Automated attacks: Bots make thousands of transactions per second, overloading business systems.

Why are small businesses vulnerable?

• Limited resources: Small businesses rarely have dedicated IT departments or cybersecurity specialists. According to Juniper Research (2024), 72% of small and medium-sized businesses (SMEs) in the US and EU reported an increase in fraudulent attacks.
• Dependence on online payments: CNP (card-not-present) transactions account for 80% of fraud cases, as physical card verification is not possible.
• Low awareness: Many entrepreneurs are unaware of modern security methods such as 3D Secure or AI transaction monitoring.
• Economic context: Especially after the sanctions of 2022–2025, small businesses have faced a 40–60% drop in orders, making any additional losses from fraud critical.

Global statistics:

• According to the Nilson Report (2024), global losses from credit fraud amounted to $33.5 billion, with a forecast to grow to $43 billion by 2026.
• According to Group-IB's Hi-Tech Crime Trends 2020/2021 report, the carding market grew by 116% to $1.9 billion, with up to 70 million card dumps stolen annually.

2. The economic impact of carding on small businesses​

Carding creates direct and indirect financial losses that undermine the sustainability of small businesses. Let's look at them by category:

2.1. Direct financial losses​

• Chargebacks: When a cardholder disputes a transaction, the bank refunds the customer, and the business loses the goods and the payment. For example, a fraudster buys electronics for $500, the goods are shipped, but the bank refunds the cardholder. The small business loses $500 plus the shipping cost.
• Inventory loss: Items sent to fraudsters are not returned. For small businesses with limited inventory, this is critical. For example, a clothing store with a 20% margin can lose a month's profit due to one major fraudulent incident.
• Statistics: According to LexisNexis Risk Solutions (2023), 33% of small businesses in the US and 28% in the EU reported significant losses from fraud, especially in e-commerce.

2.2. Fines and fees​

• Chargeback fees: Banks charge penalties for each disputed payment, typically $20–$100. For example, with 50 chargebacks, a business loses $1,000–$5,000 in penalties alone.
• Increased acquiring fees: If fraud exceeds 1% of transactions, the bank may increase the payment processing fee (from 1.5% to 3%). For a business with a monthly turnover of $100,000, this amounts to an additional $1,500 in costs.
• An example: According to the Bank (2024), the average chargeback rate in e-commerce has increased by 15% since 2020, especially for small businesses operating.

2.3. Operating expenses​

• Investigations and Disputes: Processing chargebacks requires staff time to gather evidence (e.g., shipping tracking). For small businesses, where the owner often serves as the manager, this can take up to 10-20 hours per week.
• Infrastructure overload: Card testing bots can perform thousands of transactions per hour, overloading servers. This requires investment in scaling or DDoS protection (starting at $200/month).
• Example: In 2023, a small retailer in Russia reported 5,000 failed transactions per day, which increased server costs by 30% and led to website downtime.

2.4. Reputational losses​

• Loss of customer trust: If legitimate transactions are blocked due to strict anti-fraud filters, customers may switch to competitors. A 2024 study by the Baymard Institute found that 15% of shoppers abandon purchases after receiving false positives.
• Negative reviews: Fraudulent transactions can lead to order processing failures, leading to complaints. In Russia, where trust in online stores is already low (40% of shoppers fear fraud, according to VTsIOM 2023 data), this is especially dangerous.
• Long-term effect: Losing loyal customers reduces customer lifetime value (LTV), which is critical for small businesses with a small marketing budget.

2.5. Indirect economic effects​

• Investments in protection: Anti-fraud systems (for example, Forter, Sift, or Russian equivalents like Robokassa Fraud Protection) cost from $500/month, which is a significant burden for a small business with a turnover of $10,000–50,000.
• Insurance premiums: Cyber insurance is becoming more expensive due to the rise in fraud. According to Marsh (2024), premiums for SMEs have increased by 20%.
• Reduced competitiveness: Resources spent on combating fraud divert attention from marketing, development, or scaling.

A case: In 2022, a small online electronics store in Moscow lost 2 million rubles due to carding (purchases of $15,000 worth of laptops followed by a chargeback). The business also spent $50,000 on an anti-fraud system and fines, amounting to 15% of its annual profit.

3. Peculiarities of influence​

In Russia, carding has unique features due to the specifics of the market:

• Carding Market Growth: According to Group-IB, the market for stolen card data grew to $1.9 billion by 2021, with activity expected to remain high in 2023–2025. The primary method is purchasing card dumps on the darknet (ranging from $5–50 per card).
• Carding: Fraudsters often purchase electronics, clothing, or digital goods (gift cards, subscriptions) that are easy to resell. This accounts for up to 60% of fraudulent e-commerce transactions.
• Sanctions and Isolation: After 2022, the withdrawal of international payment systems (Visa, MasterCard) forced businesses to switch to local solutions, where fraud protection is less advanced. This increased vulnerability by 20-30%.
• Economic downturn: Small businesses will lose 40-60% of their orders in 2022-2024 due to inflation and sanctions. Fraud adds 5-15% to costs, which can lead to bankruptcy.

Statistics:

• Small business losses from fraud are estimated at $1–4 billion annually (Group-IB, 2023).
• The share of fraudulent transactions in e-commerce increased from 1.5% in 2020 to 2.3% in 2024.

4. Damage mitigation strategies​

For small businesses, combating carding requires a balance between costs and effectiveness. Here are some detailed recommendations:

4.1. Technological measures​

• 3D Secure: Authentication protocols (Verified by Visa, SecureCode, Mir Accept) require additional confirmation (e.g., an SMS code). This reduces fraud by 70% (Visa data, 2023).
• Anti-fraud systems: Using AI tools (Stripe Radar, Forter, or equivalents) to analyze behavior. For example, blocking transactions from suspicious IP addresses or frequent refusals.
• Transaction Monitoring: Track patterns such as:
  • Multiple small transactions (<$10).
  • High cart abandonment rate (>20%).
  • Transactions from different cards from one IP.
• Infrastructure protection: Use a CDN (Cloudflare) or WAF (Web Application Firewall) to protect against bots. Cost: from $20/month.

4.2. Operational measures​

• Return policies: CVV required, limit on number of transactions per card, delivery address verification.
• Staff training: Regular training on fraud detection (e.g., suspicious large-value orders with delivery to another region).
• Collaboration with banks: Setting up chargeback notifications and connecting to protection programs (for example, Visa Chargeback Monitoring).

4.3. Financial measures​

• Insurance: Cyber-risk policies cover losses from fraud (cost from $1000/year).
• Reserves: Creation of a fund to cover chargebacks (5-10% of turnover).
• Payment diversification: Using the Fast Payment System (FPS) to reduce fees and risks.

4.4. Working with clients​

• Transparency: Informing customers about security measures (e.g. 3D Secure) to build trust.
• Fast support: Responding to complaints within 24 hours reduces reputational damage.

Successful protection example: A small online store in St. Petersburg implemented 3D Secure and FraudLabs Pro in 2023, reducing fraudulent transactions from 3% to 0.5% annually. The system's cost ($600/year) was recouped by a $5,000 reduction in chargebacks.

5. Long-term consequences for the small business economy​

Carding not only causes immediate damage, but also undermines long-term sustainability:

• Reducing profit margins: Fraud can eat up 5–20% of profits, which is critical for small businesses with margins of 10–30%.
• Risk of Bankruptcy: According to Dun & Bradstreet (2024), 10% of small businesses in the US have closed due to losses from fraud and cyberattacks.
• Reduced investment: Resources spent on defense divert resources from business growth (e.g., marketing or product line expansion).
• Social impact: Small businesses account for up to 20% of employment (2024). Losses from fraud may lead to job losses.

6. Conclusion​

Carding poses a serious threat to small businesses, especially e-commerce businesses, due to direct losses, fines, operational costs, and reputational risks. In world, where economic conditions are challenging SMEs, fraud can become a decisive factor in bankruptcy. Global losses from fraud amount to trillions of dollars, and small businesses bear a disproportionate burden due to limited resources.

To minimize damage, small businesses should implement available technologies (3D Secure, anti-fraud systems), optimize processes, and partner with banks. Although the cost of protection may seem high, it pays off in retained profits and customer trust. With online commerce growing (e-commerce is expected to grow by 30% in 2023-2024), proactively combating carding is key to survival and competitiveness.

If you need additional data or examples (such as a specific case study or regional statistics), let us know!