Offering its in-store and online customers multiple ways to make payments is fundamental for every business. Your customers want options, and it’s your job to meet their needs.
Today, a customer can still make purchases even if they don’t have a payment form in hand through a card-not-present transaction. In fact, that’s the term used for purchasing without being physically active.
In 2021, card-not-present transactions comprised 33% of all transactions, an increase from 31% in 2020.
In the case of a card-not-present (CNP) transaction, a cardholder or credit card isn’t physically present while making a payment. This transaction is typical for remote fax, Internet, mail, or over-the-phone orders.
Unlike “card present” transactions, when payment details are provided in person at the time of the sale, CNP transactions are completed without the merchant examining the card visually.
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Online shopping is buying products or services over the Internet, allowing customers to shop from anywhere. During this online transaction, customers provide their card number, security code (CVV/CVC), and expiration date. The merchant processes the payment using these details, usually with the help of a payment processor and gateway.
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This is similar to online shopping, with the difference that the customer picks up the order in-store instead of having it delivered. This unique shopping experience saves on shipping. It also offers a faster fulfillment option without the usual wait for conventional delivery.
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When ordering through mail, customers fill out a form providing their billing information and mail it to the company. Mail orders were used frequently before online shopping became popular, and some people still use them today.
Although online shopping has become very popular, many consumers still prefer traditional forms of purchasing or do not have access to the Internet. For such consumers, mail orders are still relevant.
A phone order is a card-not-present transaction where customers provide their card details and billing information to a salesperson over the phone, who then processes the charge.
This type of transaction is useful for customers who prefer verbal communication or cannot access online shopping platforms. Phone orders also allow businesses to cater to a wider range of customers, ensuring a seamless purchasing experience regardless of the customer's preferred transaction method.
Card-on-file payments are a common type of card-not-present transaction. Here, a merchant stores customer cards and payment information, billing customers when appropriate after being authorized by them.
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Using online payment systems, businesses send invoices for customers to pay electronically. The invoices can be paid with credit or debit cards, digital wallets, or bank transfers.
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Companies that take orders over the phone can greatly benefit from tools like DepositFix. The company is invaluable for businesses operating in sectors such as coaching and training. Imagine a salesperson offering personalized coaching sessions over the phone. During the call, the client expresses interest in a particular program and is ready to purchase.
In this case, the salesperson can smoothly obtain the client's credit card information and securely process the payment using DepositFix. DepositFix handles card details with top security and ensures compliance with industry standards. It also provides a smooth purchase experience for the client and the business.
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The difference between card-not-present and card-present transactions may seem simple. But, it involves more than just the physical presence of the credit card.
A card-present transaction is identified by the capture of electronic data when the sale occurs. This can be accomplished by magnetic strip card swiping, tapping an NFC/contactless digital wallet connected to a stored card (like Apple Pay on a smartphone), or inserting an EMV chip card.
We explored some examples of CNP transactions. Let’s now list a few examples of card-present transactions:
All other payment methods fall under the category of "card-not-present" transactions.
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CNP fraud is a credit card scam where the scammer makes a remote purchase using someone else’s card information. The merchant cannot verify the purchase's identity since neither the card nor the cardholder is present.
Without fraud prevention, a fraudster only needs a few details from a card. These are the card number, expiration date, and type. Predictions suggest CNP fraud will surge to 74.0% of all fraud by the end of this year.
Merchants face substantial costs resulting from CNP fraud:
A 2022 study found that US merchants lose $3.75 for every $1 of fraud.
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To prevent CNP fraud, businesses use technology, educate consumers, and use operational strategies. Here are the key steps:
There are various ways that businesses can securely accept card-not-present transactions:
These methods ensure that CNP transactions are processed smoothly and securely.
When businesses process card-not-present payments, they incur fees similar to those charged for processing credit cards in person.
These include:
Interchange fees tend to be higher for CNP transactions due to the increased risk of fraud and chargebacks.
As a result, merchants typically end up paying more for CNP transactions than for card-present transactions. The total cost of CNP processing fees varies depending on the industry and the payment processor's markup. The markup is calculated using a formula that considers these factors.
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Advances in CNP transaction tech help detect and stop fraud. They also reduce false positives, improve customer experience, and ensure regulatory compliance. As fraud tactics become more sophisticated, it's crucial to continue developing and integrating these technologies to combat transaction fraud effectively.
Blockchain technology creates a decentralized and unalterable ledger system, which helps detect and prevent fraudulent transactions. It also enhances transparency and ensures the validity of transactions, especially those that try to exploit anonymity.
AI/ML algorithms can examine large amounts of transaction data in real-time, facilitating businesses' identification of patterns that suggest fraudulent activity. These systems can anticipate and detect novel types of fraud by using historical fraud data.
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NLP enables the analysis of customer communication. This includes emails and chat conversations. It is used to find any signs of phishing or social engineering. By issuing alerts, NLP helps to prevent fraudulent transactions.
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Including biometric verification, such as facial, fingerprint, or voice recognition, in transaction processes provides an extra layer of security. Biometric identifiers are more challenging for fraudsters to replicate or steal than traditional passwords.
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Behavioral analytics is a powerful tool that tracks customer behavior patterns to identify deviations that may indicate potential fraudulent activities.
Using machine learning algorithms helps stop fraudulent transactions. The algorithms do this by watching customer behavior and flagging suspicious activity. Thus, they enable businesses to proactively prevent fraud, improving customer trust and loyalty.
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