Daniel Watrous on Software Engineering

A Collection of Software Problems and Solutions

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Software Engineering

Detecting Credit Card Fraud – Frequency Algorithm

About 13 years ago I created my first integration with Authorize.net for a client who wanted to accept credit card payments directly on his website. The internet has changed a lot since then and the frequency of fraud attempts has increased.

One credit card fraud signature I identified while reviewing my server logs for one of my e-commerce websites was consistent. I refer to this is a shotgun attack, since the hacker sends through hundreds of credit card attempts. Here’s how it works and what to look for.

  1. All requests from a single throw away IP address
  2. Each request uses a different card
  3. Throwaway details are often used, including a generic email with some numbers in it

Frequency Algorithm

On the other hand, the overwhelming majority of other transactions were performed using a single card. Even if there were multiple attempts, they generally used one or two cards, but not more. I guessed I could use an algorithm that worked as follows for each transaction.

  1. Create a hash based on the last four digits on the card, the expiration date. This could use MD5, SHA or any other algorithm.
  2. Create a counter for the IP address that submitted that combination of values as represented by the hash and initialize to one
  3. For each transaction attempt, repeat step 1. If the hash matches what was stored in step 2 then don’t increment. If it doesn’t match, then increment the counter to two.

This process is repeated for every transaction attempt. Notice that a customer is free to continue submitting different addresses or CCV values for a single card without incrementing the counter. If the counter reaches a threshold, all transactions submitted from that IP address can be dropped. In my implementation I provided for an hour retention of data on a given IP address. The hour retention is reset every time a transaction is attempted from the IP address, which could keep it blocked indefinitely.

This credit card fraud prevention algorithm was implemented as a RESTful service using python bottle and memcached and provides less 100ms response times under heavy load and high concurrency.