A transaction is labelled card-not-present (CNP) when a customer or credit card is not physically present, or a manual PIN number is not entered. CNP payment options may be beneficial, as they create less friction for customers and allow merchants to reach more buyers, namely through e-commerce.
However, merchants may have higher costs associated with accepting CNP transactions and higher risks of chargeback abuse than transactions where the card and/or cardholder are present.
Below, we distinguish between card-present and card-not-present transactions, explain the risks involved with CNP payments, and suggest strategies to deal with CNP chargebacks.
Related: What is a Chargeback and How Is It Avoided?
Distinguishing Card-Present from Card-Not-Present Transactions
Card-present (CP) transactions are no longer decided by the physical location of a card but whether the account’s electronic data is captured during the sale.
Card-not-present transactions referred to transactions made over phone and mail order but now encompass transactions that happen remotely or online. This includes payment via mobile wallets, shopping apps, and online marketplaces.
For example, a customer may use a mobile wallet app such as Apple Pay to pay for a coffee on a point-of-sale (POS) device at a coffee shop. Though he may have left his credit card at home, electronic data was still sent and received by the mobile wallet, resulting in a card-present transaction.
Suppose that same customer then sat down to play Candy Crush Saga and buy Gold, that in-app transaction would be considered card-not-present.
Nuances of Card-Not-Present Transactions
As mentioned above, mobile wallets are generally considered CP transactions, but in-app purchases are CNP.
Similarly, card on-file transactions present a special case. For transactions where cardholder information is securely stored for future use, like gym memberships or car loan installments, the initial order may be CP, but all subsequent payments are considered CNP.
Card-Present Transaction Examples
- Contactless-enabled payments like “tap-and-go” (NFC)
- Inserting an EMV chip card into an EMV card reader
- Swiping a magnetic stripe card
- Mobile or digital wallet payments (e.g. Venmo, Cash App, Apple Pay, Google Pay, etc.)
Card-Not-Present Transaction Examples
- Sales over telephone
- Salver over mail order
- Online shopping
- Manual credit card entry or card imprint
- Online invoices
- Card on-file transactions: any subsequent payments after likely card-present initial order
- Recurring payments: any subsequent payments after likely card-present initial order
Card-Not-Present Chargebacks Risks for Merchants
The inability to validate a physical credit card in a CNP transaction can invite “friendly” fraud and invalid cardholder disputes.
Card-not-present chargebacks result in funds being automatically pulled from the merchant bank account, resulting in lost revenue, forfeited product, chargeback fees, and any additional expenses like shipping and interchange.
Related: Chargeback Fraud 101: What Businesses Need to Know
Chargeback Fees
Processing fees are typically higher even if a merchant is not considered a high-risk merchant account. Visa’s interchange rates, for example, are roughly 15% higher for CNP transactions.
Preventing Card-Not-Present Chargebacks
- Require the right customer information for every transaction:some text
- Full Name
- Phone Number
- Email Address
- Billing Address
- Shipping Address
- Full Card Number
- Expiration Date
- CVV Security Code
- If taking an order over the phone, secure customer information in compliance with PCI requirements
- If taking an order in person, use encryption services to protect all stored cards and ask for additional identity verifications such as a photo ID to mitigate fraud risk
- Use Address Verification Service (AVS) and 3-D Secure to validate cardholder information
- Keep excellent records for every transaction of orders, payments, customer details, and any correspondence with customers
- Understand consumer behaviour seasonal patterns relevant to your customers
- Optimise the shipping and fulfilment process
Related: Chargeback Prevention Guide
Addressing Card-Not-Present Chargebacks
No matter how rigorous your prevention efforts are, chargebacks are inevitable. Learn more about the dispute process to contest invalid chargebacks, or consider getting professional help managing chargebacks for your business with Chargebackstop.
Related: Chargeback Representment: The Entire Process Explained
Looking Forward
You likely have questions about this article or perhaps other chargeback matters.
Visit ChargebackStop.com/contact-us for answers and solutions. Our customer service is here to help at no cost to you.
Once there, you can also sign up for a free demo of our service. ChargebackStop can eliminate up to 99% of chargebacks.
Really.
Visit ChargebackStop.com to find out how.
FAQ
What is a card-not-present transaction?
A card-not-present (CNP) transaction occurs when a customer or credit card is not physically present, or a manual PIN number is not entered.
What is the main difference between card-present and card-not-present?
Card-present refers to transactions where either the physical credit card is used or the account’s electronic data is captured during the sale. Card-not-present transactions can happen remotely online or over the phone, without the merchant verifying the physical credit card or cardholder details.
What risks are involved with card-not-present chargebacks?
CNP can invite “friendly” fraud or invalid charge disputes.
Merchant losses can include: lost revenue, forfeited product, chargeback fees, and any additional expenses like shipping and interchange.
Are card-not-present chargeback fees higher than card-present?
Yes, because CNP transactions represent a higher risk due to the inability to validate a cardholder’s physical credit card.