It’s vital to differentiate card-present fraud and card-not-present transactions, which means using it for tapping or swiping in store, or paying remotely online or through a call. In the growing world of eCommerce and remote payments, the growth of this type of fraud has become a big concern for online and phone-based businesses, since they can’t physically check if the buyer is legit. So, let’s dig deep and see how CNP fraud works.
What Is Card-Not-Present Fraud?
Hence, CNP fraud is when someone purchases without having the actual card but rather just the stolen card details. Nowadays, cybercriminals often resort to digital skimming where they illegally and maliciously use financial information to conduct unauthorized transactions where the card isn’t physically used. This usually happens during things like online shopping, mobile app purchases, phone orders, or even paying through email invoices. However, this solely relies on stealing the cardholder’s info (number, expiry date, security code_ rather than stealing the card itself.
How Card-Not-Present Fraud Works
Card-not-present fraud can be characterized by a few key steps that include:
Data theft: Personal card info gets stolen mainly through phishing, data breaches, or digital skimming.
Fraudulent purchase: When the thief uses the stolen intel to buy something online or by phone.
Delayed detection: With a lack of real-time checks and face-to-face detection, the fraud often isn’t caught right away.
Merchant pays: Very often online sellers, merchants, or businesses take the hit for the loss.
Common Sources of Stolen Card Information
Stealing vital card information in today’s world is, unfortunately, easier than in the past decades, and it mainly has a lot to do with the fact that not all users and businesses don’t choose professional eCommerce payment processing solutions or avoid certain steps. Some frequent data compromise vectors include:
- Hacked Databases: Online attackers tend to breach merchant systems and steal card data within the system.
- Phishing & Smishing: Using fake emails or texts to trick people into giving up various info.
- Malware: Deliberately, silently, and with purpose infecting devices to capture card details as users type.
- Digital Skimming: Using modern and sophisticated tools like “Magecart” to scrape info from checkout pages.
Sadly, such stolen data is often sold on underground marketplaces or the dark web, where fraudsters buy it to commit more scams and conduct a plethora of fraudulent purchases.
Real-World Examples of CNP Fraud
Some of the renowned worldwide CNP fraud examples utterly shook the entire financial sector across the nations. For instance, in 2019, British Airways airline company was hit by a skimming attack, with over 400,000+ card details stolen. Another example includes a global retailer that lost $500K+ in only a few weeks after a phishing scam led to a catastrophic wave of chargeback. Generally, CNP fraud now accounts for over 70% of card fraud in certain regions, and merchants tend to suffer the most. The impact of merchants remains the most unbeneficial due to chargebacks, revenue loss, and reputation damage.
Card-Not-Present Transaction Fraud in eCommerce
It is crucial to note that card-not-present transaction fraud happens when stolen card info is used to make unauthorized purchases online. Therefore, in eCommerce, this usually happens during guest checkouts, mobile payments, and subscription models, where there’s less identity verification. Plus, probably it has a lot to do with the fact that PCI compliance for eCommerce sites was not complied with, among other things. What happens is that fraudsters exploit these gaps, leading to chargebacks, bad business reputations, and revenue loss. In addition, risk levels might vary though by region and industry. Certain regions and industries high-ticket items, digital goods, and global markets are hit hardest, nevertheless it is not a satisfactory act.
How Card-Not-Present CNP Fraud Affects Businesses
CNP fraud may affect businesses hard, both right away and over time, so there can be either short-term or long-term consequences that usually entail:
- Chargebacks: which immediately lead to direct financial losses.
- Payment fees: may rise due to higher and uncontrolled fraud risk.
- Banks applying more scrutiny: Making processing tougher and seemingly lengthy.
- Customer trust drops: Hurting and losing customer trust, loyalty and brand reputation.
- Businesses also face compliance pressure: Businesses opt to face various compliance burdens (like PCI DSS, and KYC) to tighten security.
Card-Not-Present Fraud Prevention Strategies
To get across numerous above-mentioned obstacles, it is of utmost importance to incorporate some card-not-present fraud prevention strategies. Implementing them may help protect online businesses from unauthorized purchases made with stolen card data. Some of them include:
- 3D Secure (3DS2): Adding an extra layer of protection or identity check at checkout to verify the cardholder.
- Address Verification System (AVS): Confirming the billing address matches what’s on file with the bank.
- CVV Matching: Verifying the card’s security code to ensure the buyer has the actual card info.
- Device Fingerprinting: Tracking device behavior to detect suspicious patterns.
- Velocity Checks & Fraud Scoring: Meticulously flagging unusual purchase behavior, like fast repeat orders or mismatched data.
Let’s just clarify that now many businesses rely on AI-powered payment solutions such as Vellis offers to detect and block fraud in real time.
Tools and Technologies That Help Detect CNP Fraud
Several tools have been neatly designed to catch CNP before it occurs in the system. Some of them include:
Payment Gateways with Fraud Tools: These getaways have built-in checks like CVV, AVS, and risk scoring.
Behavior Analytics & Geolocation Tracking: Inspects and monitors user behavior and location to detect any unusual activity.
Tokenization & Secure Vaulting: Replacing card data with tokens and storing information adequately and safely to reduce risk.
It is extremely important to customize fraud rules based on your transaction patterns, as this would help filter out fraud without blocking real customers.
Best Practices for Businesses to Minimize Risk
Some of the must-do actions that will help reduce exposure to CNP fraud and enable you to keep your business’s operations smooth, safe, and secure are:
- Always update and patch all systems and software
- Try to train customer support to recognize fraud red flags
- Do your best to limit manual overrides on flagged transactions
- Avoid storing full card data unless necessary
- Make sure to monitor high-risk transactions and keep track of unusual activity.
Card-Not-Present Fraud in B2B vs. B2C Transactions
Lastly, when it comes to these two types of transactions, the main differences are that B2B offer fewer bur high-value transactions that require strong verification and approval processes, while B2C requires real-time and scalable tools that deliver high-volume, fast-paced results. In each case, industry matters. SaaS, for instance, face subscription and account abuse whilst luxury goods attract fraud due to resale value, etc.
FAQs
What is card-not-present fraud?
CNF entails an unauthorized use of payment card details without a physical card, usually done online or by phone transactions.
Why is card-not-present fraud increasing?
It’s increasing due to more purchases happening online or via apps so criminals can access stolen data easily.
Who is liable for card-not-present transaction fraud?
The merchant, and not the cardholder, gets liable for the loss in CNP scenarios.
How can my business reduce card-not-present fraud?
The business can use tools like 3DS2, AVS, fraud detection software, and strong payment gateways with PCI-compliant infrastructure.
What’s the difference between card-present and card-not-present fraud?
Card-present requires the physical card (e.g., chip or tap), while card-not-present involves just the card details used remotely.
References
Stripe: What is card-not-present fraud
https://stripe.com/resources/more/what-is-card-not-present-fraud-what-businesses-need-to-know
Investopedia: Card-not-Present Fraud: What It Is And How It Works
ForbesL How Your Business Can Prevent Credit Card Fraud
https://www.forbes.com/sites/braintree/2017/10/20/how-your-business-can-prevent-credit-card-fraud
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