Introduction to carding attacks and the need to protect POS terminals

[Student]

Carding attacks are a type of fraud in which criminals use stolen credit or debit card information to test its validity through a series of small transactions at point-of-sale (POS) terminals. These attacks often occur in real time: fraudsters "swipe" cards at in-store terminals to verify their validity before using them for large purchases or online. POS terminals are particularly vulnerable because they process sensitive card data (such as PAN (primary account number), CVV, and expiration date) at the point of payment.

Banks and payment systems (Visa, Mastercard, PCI DSS) implement multi-layered technical measures to prevent such attacks. These measures are based on the principles of "zero trust" and "defense in depth," where data is protected at all stages: from input at the terminal to authorization at the bank. The goal is to minimize the risk of leaks, render data useless to hackers, and quickly identify suspicious activity. According to statistics, the implementation of such technologies reduces fraud by 70–90%. In this educational review, we will examine the key measures in detail, from theory to practice, with examples and explanations of the mechanisms.

1. Data tokenization​

What is it? Tokenization is the process of replacing sensitive card data (such as a 16-digit PAN number) with a unique, random "token" — a string of characters that carries no real information and is useless outside the system. The token is generated by a special service (token service provider, TSP), often provided by payment networks like Visa or Mastercard.

Here's how it works, step by step:

1. Data entry: The customer inserts the card into the POS terminal or uses contactless payment (NFC).
2. Token request: The terminal sends the actual card data to a secure TSP (via an encrypted channel). The TSP generates a token, storing the original data in a "token vault"—an isolated storage facility.
3. Data substitution: The token is returned to the terminal and used for the transaction. For example, instead of "1234 5678 9012 3456," the token might be "ABCD EFGH IJKL MNOP." The token may retain its format (length, last four digits for verification), but it cannot be restored to the original without the key.
4. Authorization: The bank receives the token, and the TSP "detokenizes" it only for authorized systems.
5. Storage and reuse: Tokens are stored on terminals or in merchant systems, reducing PCI DSS requirements since no actual data is stored.

Why is it effective against carding? If a hacker intercepts a token (for example, through malware on the terminal), they won't be able to use it for other transactions — the token is tied to a specific merchant or device. This prevents card "testing": fraudsters won't obtain valid data for reuse. Combined with end-to-end encryption, tokenization protects data in transit, as was the case with the 2013 Target breach, where the lack of tokenization led to the leak of millions of cards.

Examples of implementations:

• Mastercard uses tokenization for mobile wallets (Apple Pay), where a token + cryptogram (one-time code) verify a transaction.
• Banks are integrating tokenization into their POS systems according to PCI DSS standards, reducing risks by 80%.

Advantages and limitations: Increases transaction speed (high approval rates), reduces compliance costs. However, it requires integration with a TSP and does not protect against physical skimming without additional measures.

2. EMV chip technology (Europay, Mastercard, Visa)​

What is it? EMV is a standard for chip cards that uses dynamic cryptography instead of static data on the magnetic strip. The chip generates a unique code (cryptogram) for each transaction.

Here's how it works, step by step:

1. Card insertion: The chip on the card interacts with the terminal, generating an ARQC (Authorization Request Cryptogram) – a cryptogram based on random data.
2. Verification: The terminal sends the ARQC to the issuing bank, which checks its authenticity.
3. Answer: The bank returns an ARPC (Authorization Response Cryptogram) confirming the transaction.
4. Contactless mode: NFC (contactless) payments use a similar process with amount limits for speed.

Why is it effective against carding? Static magnetic stripe data is easy to copy (skimming), but EMV cryptograms are one-time use — reuse is impossible. This reduces counterfeit fraud by 70–80%. Fraudsters cannot "test" a card without a physical chip.

Examples: In the US, after migrating to EMV in 2015, POS fraud fell by 75%. In Europe, EMV has been the standard since the 2000s and is integrated with tokenization for complete protection.

Limitations: Does not protect against "card-not-present" (online) attacks, but is ideal for POS.

3. Point-to-Point Encryption (P2PE)​

What is it? P2PE is full encryption of data from the moment it's entered at the terminal to the bank, without decryption at intermediate nodes.

Here's how it works, step by step:

1. Input encryption: Data is encrypted in the terminal's hardware security module (HSM) immediately after input.
2. Transit: Encrypted data is transmitted over the network (using TLS/SSL).
3. Decryption: Only the bank or processor decrypts them for authorization.
4. Integration: Often combined with tokenization - encrypted data is tokenized.

Why is it effective? Even if the terminal is hacked (by malware), the hacker will only obtain the encryption key, which is useless without the key. It reduces merchant liability: in the event of a leak, the P2PE provider is held liable.

Examples: Bluefin and Futurex offer P2PE solutions integrated with EMV.

4. Fraud Detection Systems with AI​

What is it? AI/ML algorithms analyze transactions in real time for anomalies.

How it works:

1. Velocity checks: Limit transactions (e.g. no more than 5 per minute).
2. Behavioral analysis: Comparison with history (geolocation, amount, time).
3. AI models: Machines learn from data, blocking suspicious carding patterns.

Effectiveness: Blocks 80-90% of attacks; banks like JPMorgan use it.

5. Additional measures: MFA, 3D Secure, and physical security​

• MFA and 3D Secure: Requires PIN, biometrics, or SMS for verification; EMV 3D Secure is POS-ready.
• Network measures: Firewalls, segmentation, WPA3 for Wi-Fi.
• Physical protection: Tamper-proof terminals according to PCI PTS.

Conclusion and recommendations​

These measures form a security ecosystem, where tokenization is a key element but works in tandem with others. For banks, implementation requires compliance with PCI DSS (12 requirements, including audits). For educational purposes, study the standards at pcisecuritystandards.org or take cybersecurity courses. For businesses, consult with providers like Visa for customization. Regular updates and testing are the key to success against evolving threats.