What You Need to Know About Card Not Present Transactions

Robirt Kong

Estimated read time: 4 minutes, 45 seconds

The impressive growth of digital businesses combined with consumers’ growing interest in cross-border ecommerce and online shopping will continue to propel the growth of the ecommerce ecosystem.

A key catalyst behind the explosive growth of ecommerce stems from increased mobile phone usage. As mobile phones become more powerful and are able to support a variety of native apps, connecting to the internet and shopping online becomes more convenient for consumers around the world.

Many experts are even wondering if online shopping will one day outpace all transactions in physical stores. While U.S.-based brick and mortar stores drive an impressive $3.9 trillion in sales, ecommerce is growing by incredible leaps and bounds to give more traditional commerce sources some serious competition.

One thing is certain, ecommerce isn’t a fad and to remain competitive, your digital business needs to stay on top of this ecommerce trend.

In today’s high-speed digital world, customers can still make purchases without leaving the comfort of their home or having to have a physical form of payment in hand. We’re sharing everything you need to know about card-not-present transactions, their role in ecommerce, and how they can impact your digital business.

Card Present vs. Card-Not-Present Transactions

Card present transactions are very common in brick and mortar stores. During checkout, you are often asked to swipe your credit or debit card into a point of sale terminal. Transactions that capture payment details in person, at the point of sale are considered “card present”.

Online shopping presents an innovative shift in how customers engage with stores and receive their products. Thanks to ecommerce and online payment processing technology, customers can still have the same purchase experiences without necessarily being present in a brick and mortar shop. Transactions that are processed without the credit card or cardholder being physically present at the time of the transaction, are considered a “card-not-present” transaction.

Card-not-present transactions allow digital business to conveniently sell their digital products or services to customers around the world.

How much does it cost to process cards remotely?

In a direct comparison, you’ll often discover that transaction processing fees are often higher for card-not-present transactions than for card present transactions. For example, average interchange rates for Visa Card “card present” transactions (swiped, dipped, or trapped cards) is 2.10% + $0.10, while card not present rates are 2.40% + $0.10.

The difference in cost stems from the perceived risk for fraud in card-not-present transactions, as the merchant cannot physically validate the cardholder or payment card in person.

How does Card Not Present (CNP) fraud happen?

It is estimated that in 2017, CNP payment card fraud totaled 5.2 billion dollars.

The most common case of CNP fraud occurs when compromised card information is used by a criminal to complete transactions remotely. This form of payment card fraud occurs without the actual cardholder’s knowledge—often times the cardholder will not realize the fraud occurred until they review their billing statement at the end of the month and find unauthorized charges on their account. In the United States, CNP fraud represented 40% of total U.S. card fraud.

The damaging effects of CNP fraud are not limited to individual cardholders.

CNP transactions may also leave your digital business susceptible to chargeback fraud. Chargeback fraud occurs when customers report not receiving the product or authorizing the charge despite already receiving the product from your digital store. In this instance, your digital business loses out on a sale and the funds can also be pulled from your merchant account to settle the chargeback claim. You may also be charged a fee for each disputed transaction.

According to a 2017 LexisNexis Study on the true cost of fraud, for each dollar lost to fraud, digital businesses can expect to lose $3.48 in revenue due to the associated fees, lost merchandise, and lost sales potential. In order to protect your revenue, your business must take proactive steps to prevent CNP fraud.

3 Strategies to Curb Card Not Present Fraud

How do we verify that the person remotely making the transaction is actually authorized to do so? Here are three popular industry standards helping to prevent CNP fraud:

1. Use Address Verification Services (AVS)

Address Verification Services compares the billing address provided by the customer during the transaction to the billing address on the card issuer’s file. Red flags are raised if there is a discrepancy between the two.

2. Validate Card Security Codes

The second way to verify a CNP transaction involves the use of Card Security Codes (CSC). CSCs are typically the 3 digital numbers (near the cardholder signature field) present on the back of most Discover, Mastercard, and Visa Cards. Entering the card security code during a transaction allows the system to verify that despite the remote order, the shopper is still in possession of a valid physical card.

3. Adhere to PCI Compliance

Ensuring proper PCI compliance is another way to minimize the volume of fraudulent sales. By conducting customer transactions over secure servers on a PCI compliant system, your business can minimize the risk of customer data being compromised. FastSpring’s all in one ecommerce platform helps securely process transactions by aggregating order data and conducting a real-time anti-fraud analysis.

The ecommerce ecosystem is changing.

It doesn’t matter if you’re an established digital business or an up-and-coming online store looking to sell software, digital downloads, or digital content, a key part of selling online is making sure you’re familiar with the ecommerce ecosystem. Understanding the overall concept of card-not-present transactions is just the tip of the iceberg.

Ready to learn more? Take a look at our whitepaper to learn about the three ecommerce trends your digital business should be aware of. Get your copy of The Future of Ecommerce for Digital Businesses.

Robirt Kong

Robirt is a recent graduate from U.C. Santa Barbara with a B.A. in Communication and Econ. After spending six months at FastSpring as an intern, Robirt joined the team full-time as a Digital Marketing Specialist. Robirt combines his interest in digital marketing strategy and analytics to assist the team in a variety of projects including Content, SEO, and Paid Media. Outside of work, you can find him spending time with friends, enjoying Downtown Santa Barbara, and learning how to program.
scaling globally5 internet trends shaping 2018