A Complete Guide to SMS Pumping Fraud, Business Impacts and Protection Strategies

The Growth of SMS Fraud

SMS pumping fraud represents one of the fastest-growing cyber threats online, with global losses reaching an estimated $6.7 billion in 2021 alone. This sophisticated attack targets companies that rely on SMS for verification processes or customer communications, creating significant financial exposure across multiple industries.

This fraud scheme operates through collaboration between malicious actors and dishonest telecom operators, who work together to generate and monetise massive volumes of fraudulent text messages. For businesses caught in these schemes, the financial impact can be devastating—Twitter (now X) reportedly lost $60 million to this type of fraud.

Our comprehensive guide explains how SMS pumping works, which businesses face the highest risk, and the most effective protection strategies your organisation can implement to prevent becoming the next victim.

Understanding SMS Pumping Fraud

SMS pumping (also called SMS toll fraud, SMS spamming, or Artificially Inflated Traffic) involves manipulating mobile networks to inflate charges for text messages. The term "pumping" describes how fraudsters flood systems with thousands of messages—like water overflowing from a container.

This fraud exploits how SMS messages travel and get billed across phone networks. Attackers target companies that use SMS codes to verify users. Each time a business sends a verification code, it pays a fee. Fraudsters trigger these systems to send thousands of messages to numbers they control.

These attacks cost businesses large sums of money while creating profits for the attackers. The fraud works through teamwork between criminals and corrupt telecom operators who charge premium rates for message delivery and share the profits.

The fraud has changed over time as more businesses use SMS verification. Companies now face more risk as attackers develop new methods. The phone industry cannot protect businesses fast enough, which leaves many companies open to financial harm.

How SMS Pumping Works

SMS pumping attacks exploit message systems through these steps:

1. Finding Targets: Attackers find websites or apps that send SMS codes when users ask for account verification or password resets.
2. Creating Fake Requests: Fraudsters use computer programs to send thousands of code requests to phone numbers they own or control.
3. Hiding Their Tracks: Attackers change their IP addresses and device information to make requests seem like they come from real users.
4. Sharing Profits: Fraudsters work with dishonest phone companies that charge high fees when messages pass through their networks. These companies then share the money with the attackers.
5. Using Complex Routes: Messages travel through many networks before reaching their destination, which hides who started the fraud.
6. Targeting Expensive Routes: Attackers focus on international numbers where sending messages costs more or where rules are not strict.

These attacks look real because each message contains an actual code sent to what seems like a normal phone number. Companies like Twilio or Bird must pay fees to deliver these messages. Most businesses only find out about the fraud when they get a large bill from their SMS service.

SMS pumping differs from basic spam because of the profit-sharing between attackers and phone companies, which creates more harm for the target business.

Businesses at Risk

SMS pumping targets these types of businesses:

Financial Institutions

Banks, investment platforms, and cryptocurrency exchanges use SMS codes to protect accounts. These firms send thousands of codes each day, which makes it hard to spot fake requests mixed with real ones.

E-commerce Platforms

Online shops use SMS messages when users create accounts, reset passwords, or make purchases. These businesses often run on small profit margins, so extra SMS costs can hurt their earnings. The high number of new users makes it easy for attackers to hide their actions.

Social Media Companies

Social networks use text messages to check user identity and stop fake accounts. These companies send millions of codes each day to users around the world. Twitter lost $60 million from this type of fraud, showing how big the problem can be.

Software-as-a-Service (SaaS) Providers

These companies often offer free trials that need SMS verification. They plan for a set cost to get each new user, but fraud makes these costs much higher than expected.

Telecommunications Companies

Phone companies face two problems: their own systems can be attacked, and parts of their network might help the fraudsters. They need strong monitoring tools to find strange patterns in message traffic.

Small Businesses and Startups

While smaller firms send fewer messages, they often lack security teams and fraud detection tools. This makes them easy targets. The cost of an attack can put these businesses at risk of closing down since they have less money in reserve.

Advanced Attack Methods

Attackers now combine SMS pumping with other techniques to avoid detection.

Credential Stuffing

Fraudsters use passwords stolen in data breaches to break into accounts. Once inside, they change phone numbers to ones they control and trigger verification messages. This makes fraud appear to come from real users.

Peakhour's breach database detection identifies when stolen credentials attempt to access accounts. Their system flags these attempts before phone numbers can be changed, stopping the attack chain.

Residential Proxy Networks

Unlike data centre proxies that security systems can spot, residential proxies hide attack traffic behind home internet connections. This makes fraud look like it comes from regular users in different locations.

Peakhour specialises in residential proxy detection. Their technology identifies these masked connections and blocks them before verification requests can pass through. The system maps known proxy networks and detects the signs of traffic passing through residential IPs.

When combined with device fingerprinting, these protections create a solid defense. Fingerprinting tracks device characteristics that remain consistent even when attackers change IP addresses or accounts. Peakhour's fingerprinting technology works without cookies, making it effective against attackers who clear browser data.

These methods stop modern attacks by focusing on the techniques fraudsters use to hide their identity. With Peakhour's protection, businesses can detect and block these sophisticated attacks before they trigger costly SMS verification messages.

Historical Incidents

The history of SMS pumping shows attacks that cost businesses large sums of money:

Twitter's $60 Million Loss

In January 2023, Twitter owner Elon Musk said the platform lost more than $60 million to SMS pumping fraud. He named over 390 phone companies that took part in the scheme. While Twitter later questioned some claims, this case brought public attention to this type of fraud.

Industry-Wide Financial Impact

The Communications Fraud Control Association reports that SMS pumping caused global losses of $6.7 billion in 2021. Many companies do not share their fraud losses with the public.

Costs to Individual Businesses

Companies hit by these attacks pay between tens of thousands to millions of dollars each month in fake charges. These costs grow fast because each fake message costs much more than normal text rates.

Verification Policy Changes

Because of these threats, many big platforms have stopped using SMS codes. Twitter removed SMS verification for most users in March 2023, stating fraud as the reason.

Operational Disruptions

Beyond just the cost of messages, businesses face service problems during attacks. Real users may not get their codes on time. This causes users to give up on transactions, call for help more often, and think less of the company.

Rules and Enforcement

Rules to stop these attacks differ around the world. Some phone authorities have strict rules and fines for networks that allow fraud, but stopping these schemes remains hard. Fraudsters use complex message routes that cross many countries to avoid getting caught.

Understanding the Stakeholders

SMS pumping includes these key groups:

Businesses
Companies use SMS to check user identity and send updates. They hire SMS gateway providers to handle their messages. When fraud happens, these businesses pay for all the fake messages. Most find out about the attack only when they get a huge bill.

SMS Gateway Providers
Companies like Twilio and MessageBird connect businesses to phone carriers. They give businesses tools to send text messages without working with phone networks directly. When fraud passes through their systems, these providers may try to stop it, but still charge businesses for all messages sent.

Mobile Network Operators (MNOs)
These companies run the networks that deliver messages to phones. Most work honestly, but SMS pumping schemes often include corrupt operators who charge extra fees for messages to numbers they control. These dishonest operators then split the money with the attackers who started the fraud.

Content Aggregators
These middlemen combine message traffic and work with many carriers to find the best routes. Most run honest operations, but their position in the message chain creates weak spots that attackers can use.

Regulatory Bodies
Groups like the GSM Association create rules and standards for the industry. But these rules prove hard to enforce because phone networks cross many countries with different laws.

Financial Flow
The money path starts when businesses pay gateway providers to send messages. The gateway providers then pay fees to network operators based on where messages go. In fraud schemes, the extra high fees go to corrupt operators who share the money with attackers. This creates a system where sending more fake messages makes more money for criminals while costing honest businesses more.

Effective Protection Strategies

Protecting your organisation requires these methods:

Basic Protections

1. Rate Limits: Restrict how many verification attempts a user can make in a set time period.
2. Traffic Pattern Checks: Track normal SMS message patterns and watch for changes that might show attacks.
3. Provider Protection: Services like Prelude's SMS Pumping Protection find and block messages to fake numbers.
4. Other Ways to Verify Users: Use app-based verification, push alerts instead of SMS codes.
5. Control by Country: Limit SMS verification to countries where you do business and add more checks for countries with high fraud risk.
6. Work with Trusted Partners: Choose SMS service providers that focus on security and can help stop fraud fast.

Advanced Protection Methods

1. Residential Proxy Detection: Find and block users who hide their true location by using home networks as proxies to mask their attacks.
2. Device Fingerprinting: Collect unique details about each user's device to track them across sessions and spot when many verification requests come from the same device.
3. User Behaviour Tracking: Learn how real users act on your site and flag strange actions that might be bots.
4. Machine Learning Systems: Use computer systems that learn from data to find hidden fraud patterns and adapt to new attack types.
5. Phone Number Checks: Use lists of known bad numbers to decide which phone numbers need more verification steps.
6. Verify in Multiple Ways: Ask users to prove who they are in different ways, like email plus SMS, to make attacks harder.
7. Work with Other Companies: Share information about new attack methods and bad phone numbers with other businesses.
8. Watch Transactions as They Happen: Use systems that can pause message sending when they spot strange patterns and learn from both good and bad examples.

Fighting SMS Pumping Fraud

SMS pumping fraud costs businesses $6.7 billion worldwide each year. Companies like Twitter lost $60 million to these attacks, proving no organisation remains safe.

SMS pumping works through a network of fraudsters, network operators, and service providers who exploit the payment system for text messages. Fraudsters target authentication systems to generate mass text messages, then collect revenue shares from the process.

Peakhour and Prelude offer combined protection against these threats. Peakhour provides device fingerprinting to identify suspicious devices attempting verification. Their residential proxy detection stops fraudsters who hide behind legitimate IP addresses. These tools block attackers before they access verification systems.

Prelude complements this protection with their multi-routing SMS verification platform. Their system uses real-time fraud detection across five messaging channels in 230 countries. When Prelude detects a potential attack, it automatically redirects traffic through secure routes.

Businesses must understand all parts of the SMS delivery chain to protect themselves. Gateway providers, network operators, and content aggregators all play roles that create points for potential exploitation.

Prevention requires multiple security layers:

• Rate limiting to restrict message volume
• Device fingerprinting to track suspicious patterns
• Residential proxy detection to unmask hidden attackers
• Behavioural analytics to spot unusual activity
• Machine learning to adapt to new attack methods
• Continuous learning based on real user interactions

The continuous learning systems from both Peakhour and Prelude build protection that improves with each user interaction. Their platforms analyze legitimate traffic patterns to differentiate from attacks, creating an evolving defense that grows stronger over time.

While SMS verification remains common, Peakhour and Prelude help businesses implement more secure authentication methods. Together, they provide protection that adapts to evolving threats, safeguarding both finances and customer trust.