What Is a Card-Not-Present Transaction

A Card-Not-Present (CNP) transaction refers to a type of credit or debit card transaction where the cardholder is not physically present at the point of sale, meaning the merchant cannot physically swipe, dip, or insert the card into a terminal. 

This situation typically arises in online shopping, phone orders, or mail orders, where the card details (card number, expiration date, and security code) are provided electronically, and the transaction is processed remotely. 

Because the card is not physically available, CNP transactions carry a higher risk of fraud compared to in-person transactions. Fraudulent activities can be harder to detect, as there’s no way for the merchant to verify the identity of the person using the card, making it more susceptible to chargebacks, identity theft, and unauthorized purchases. 

To mitigate this risk, merchants often implement additional security measures, such as requiring the Card Verification Value (CVV) or using 3D Secure authentication, which adds an extra layer of verification by requesting a password or one-time code from the cardholder during the transaction process. 

This type of transaction is commonly associated with e-commerce platforms, subscription services, and digital goods, where physical interaction is not possible. However, due to the potential for higher risk, CNP transactions often have higher processing fees for merchants, which is passed on to the consumer or absorbed by the seller depending on the business model. 

While convenient for customers, especially in the context of remote shopping or services, these transactions highlight the importance of maintaining strong digital security protocols to ensure the protection of sensitive financial information.

Most Common Purchases Considered a Card-Not-Present (CNP) Transaction

Card-Not-Present (CNP) transactions occur when the cardholder is not physically present at the point of sale, making it more susceptible to fraud. Some of the most common purchases considered CNP transactions include:

• Online Shopping: Purchases made through e-commerce websites are one of the most common CNP transactions. This includes buying anything from clothing and electronics to books and home goods. Since the cardholder is not physically present, retailers use security measures like SSL encryption and 3D Secure to verify the transaction.
  
  
• Subscription Services: Many businesses offer services where payments are automatically charged on a recurring basis. Examples include streaming platforms like Netflix or Spotify, software subscriptions like Adobe Creative Cloud, and online publications. These payments are typically processed as CNP transactions, as customers input their payment details once and the charges occur regularly without any physical card interaction.
  
  
• Travel Bookings: Booking travel arrangements, such as flights, hotels, and car rentals, are usually done online, making them CNP transactions. These transactions often involve larger amounts of money and require verification measures to protect against fraud, such as requiring additional authentication or 3D Secure for high-ticket bookings.
  
  
• Digital Goods and Downloads: Purchases like software, eBooks, music, video games, and apps are common examples of digital goods bought through CNP transactions. These purchases are often low in cost but frequent, and because they don’t require physical card presence, additional authentication like CVC (Card Verification Code) or secure payment gateways may be used.
  
  
• Food Delivery: Ordering food via platforms like Uber Eats, DoorDash, or Grubhub involves CNP transactions. Since users often store payment information in the app for ease of use, these transactions are typically processed without physical card interaction. The convenience of card-on-file payments in such services makes them a common and recurring CNP transaction.
  
  
• Telecommunications: Bill payments for services such as mobile phone bills, internet subscriptions, or cable TV are frequently done via CNP transactions. Most telecommunications companies offer customers the option to save their payment information for easy bill payments each month, making these transactions quick and seamless.
  
  
• Ticket Purchases: Whether it's for concerts, movies, or events, buying tickets online is almost always a CNP transaction. Users enter their payment details to complete the purchase, and sometimes the tickets are sent electronically or via email. These transactions often require measures to ensure they are legitimate, especially for high-demand events where ticket fraud is more common.
  
  
• Hotel or Rental Services: Booking accommodations through platforms like Airbnb or Booking.com also involves CNP transactions. These services require card details to secure the reservation, often involving pre-payment or authorization holds on the card. Since these services require a high level of trust and security, they typically have advanced fraud detection systems in place.
  
  
• Insurance Premiums: Many insurance companies, from health and life to car and home, process CNP transactions for regular premium payments. Since these payments can be recurring, card-on-file transactions are commonly used to automatically charge the policyholder’s account. Extra security measures are also critical, especially when sensitive personal information is involved.
  
  
• Card-on-File Payments: Card-on-file payments refer to situations where a merchant stores a customer’s card details securely for future use. This is commonly seen in subscription services, such as monthly magazine subscriptions or software services. It’s also prevalent in food delivery apps, ride-sharing services (like Uber or Lyft), and online retailers that offer "one-click" purchasing. The stored data allows for faster, more convenient transactions but requires robust security, including tokenization and encryption, to mitigate the risk of data breaches.

These CNP transactions all require different levels of security, depending on the amount of risk associated with the transaction and the nature of the business

CNP Transactions and the Risk of Fraud

Card-Not-Present (CNP) transactions, such as online shopping, subscription services, and digital goods purchases, are convenient but come with a higher risk of fraud since the cardholder is not physically present to verify the transaction. This makes it easier for fraudsters to use stolen card details, conduct account takeovers, or initiate friendly fraud. The lack of physical verification, along with the growing use of stored card information, increases vulnerability. Key risks include:

• Stolen Credit Card Information: Fraudsters using stolen card details for unauthorized purchases.
• Account Takeover: Fraudsters accessing a customer's account to make purchases.
• Friendly Fraud: Legitimate customers disputing valid charges.
• Card Testing: Testing stolen card details on multiple platforms to find valid ones.

To mitigate these risks, businesses can use secure payment gateways, 3D Secure authentication, tokenization, and fraud detection tools, ensuring they comply with PCI DSS standards for securing cardholder data.

How to Securely Accept Card-Not-Present Transactions

To securely accept Card-Not-Present (CNP) transactions, businesses need to implement robust security measures to protect sensitive customer data and reduce the risk of fraud. Here are key steps to ensure secure acceptance:

• Use Secure Payment Gateways: Choose reputable payment gateways that provide strong encryption for card details during the transaction process.
• Implement 3D Secure Authentication: Use 3D Secure (e.g., Verified by Visa, Mastercard SecureCode) to add an additional layer of authentication, such as a password or one-time code, during the payment process.
• Tokenization: Replace sensitive card information with unique, non-sensitive tokens. This reduces the risk of data breaches, as tokens are useless to fraudsters even if stolen.
• Address Verification System (AVS): Use AVS to verify the cardholder’s address and match it with the billing address on file with the bank, adding a layer of security.
• Multi-Factor Authentication (MFA): Require additional verification methods, such as text message codes or biometric checks, especially for high-value transactions.
• Fraud Detection Tools: Employ advanced fraud detection systems that analyze transaction patterns, detect anomalies, and flag suspicious activities in real-time.
• PCI DSS Compliance: Ensure your business adheres to Payment Card Industry Data Security Standards (PCI DSS) to securely store, process, and transmit cardholder information.

With the implementation of these security measures, businesses can reduce fraud and provide a safe environment for customers making CNP transactions.

CNP Transactions Processing Fees and Costs

Card-Not-Present (CNP) transactions generally come with higher processing fees compared to traditional Card-Present (CP) transactions due to the increased risk of fraud and chargebacks. The costs associated with CNP transactions can vary depending on the payment processor, merchant's industry, and the volume of transactions, but here are some common fees and costs to consider:

• Higher Transaction Fees: CNP transactions often incur higher fees because payment processors charge more for the added risk of fraud. These fees are typically a percentage of the transaction amount, ranging from 2.5% to 4% per transaction.
• Chargeback Fees: Since CNP transactions are more prone to chargebacks (when a customer disputes a charge), merchants may be subject to additional fees. Chargeback fees can range from $20 to $100 per incident, depending on the processor.
• Monthly Gateway Fees: Merchants using online payment gateways for CNP transactions often pay monthly fees for gateway access, which can range from $10 to $30 per month, plus additional fees for each transaction processed.
• Authentication Fees: If merchants implement additional security measures like 3D Secure or tokenization, they may incur extra costs for integrating these technologies into their payment system.
• Risk Mitigation Costs: To reduce the risk of fraud, businesses may invest in fraud detection systems or chargeback protection services. These can involve monthly or per-transaction fees depending on the tools used.

While CNP transactions are convenient, merchants should be prepared for higher processing fees due to the greater risk involved. Businesses can reduce some of these costs if they implement effective fraud prevention measures and ensure they comply with PCI DSS standards.