Not all that long ago, most purchases were made in person, with merchants and customers able to look each other in the eye and exchange currency hand to hand. However, those days seem to be gone forever, with an increasing number of transactions taking place virtually over the phone or internet. As a seller, you need to learn more about these so-called card-not-present or virtual transactions so that you can understand their pricing structure and choose the credit card processor that best meets your specific needs.

What are card-not-present transactions?

Simply put, a card-not-present (CNP) transaction does not involve the use of a physical credit card. Common examples of CNPs include the following.

• Payments made over the phone for food orders or other goods or services. In this case, you or one of your staff members manually enters the customer’s payment details into a virtual terminal.
• Inputting information that a customer has provided on a hard copy form for a mail order purchase.
• Entering a customer’s payment information for an in-store purchase when the card fails to scan.
• Online credit card transactions. These are conducted with the help of a secure payment gateway, which acts as an intermediary between your website and the buyer’s bank.

Thanks to significant advances in technology and security protocols, these remote transactions are proving to be almost as safe as in-person purchases. This is especially true when sellers incorporate tips for preventing fraud into their business model.

The cost of processing CNP transactions.

Depending on your credit card processor and other factors, what you will pay for CNP transactions may vary widely. In general, however, you can expect the cost to be somewhat more than what you need to shell out for an in-person sale.

Why is this the case? The answer lies in the nature of the transaction itself. Because you have no way of verifying that the customer is actually in possession of the physical credit card to know that it is legitimately theirs, the chances of fraud are increased.

In contrast, card-present transactions occur when the customer is holding their physical card and uses it to buy a product or service. Card-present payments can occur via the following ways.

• Swiping a magnetic stripe card.
• “Dipping” or inserting an EMV card into a reader which uses an electronic chip embedded in the card to process the payment.
• Contactless or tap-and-go payments that utilize NFC or RFID technology.
• Mobile platforms like Apple Pay, Google Pay, Samsung Pay, and others that connect to secure digital wallets built into customers’ smartphones.

Despite the innovations that have increased the security of CNP payments, card-present transactions continue to be perceived by credit card processors as safer. Therefore, you can expect to pay less whenever a physical card is present.

Types of CNP fraud.

CNP fraud comes in a variety of forms. It commonly occurs when a thief steals someone’s credit card details and then uses them to pay for goods or services online. It can also happen with payments that are submitted by phone; someone steals card information, uses it to call in a payment, and then picks up the products before the victim has time to report the identity theft.

One of the best ways to prevent CNP fraud is to work with a card processor that makes identity verification a priority. As you investigate the best company to work with, be sure to choose one that uses tools such as zip code verification and two-factor authentication, and make sure they adhere to the Payment Card Industry Data Security Standard (PCI DSS) set forth by the major credit card companies. These protocols have been designed to protect cardholder data and keep identity theft and other types of fraud to a minimum.

A word about chargebacks.

Chargebacks happen when a customer disputes a charge by contacting their credit card company without coming to you (the merchant) first. Chargebacks can occur with all credit card transactions, but they are particularly difficult when they happen to CNP payments. This is because it is more difficult to prove that the transaction was conducted by the true cardholder. Whether chargebacks occur for legitimate reasons (such as if a customer does not recognize your business name on their bill) or due to fraud, they inevitably lead to stress, increased costs, and even the potential for closure of your merchant account if they happen often enough.

As with other types of fraud, effective prevention happens when you make a maximum effort to verify the legitimacy of your customers’ identities before allowing the payment to go through. Additionally, you should protect yourself by keeping thorough records of the orders you take, as well as general customer details. Also, strive for transparency throughout your website, particularly when it comes to shipping, warranty, and product return details.

The advantage of accepting CNP transactions.

In light of the above discussions about the higher prices and fraud that can come with CNP transactions, you may be wondering if you should eliminate them from your business model altogether. However, today’s commercial climate, coupled with customers’ demands for convenience, should discourage you from removing this easy way to pay.

That being said, there are steps you can take to reduce your chances of being a victim of CNP fraud.

• Maintain organized records that include details about orders, including customer names and shipping addresses.
• Regularly inspect your website to ensure that product information and company policies are accurate and up-to-date.
• For every CNP order, require that customers provide complete addresses.
• Partner with a card processor that uses cutting-edge anti-fraud tools and other security protocols. 

Although CNP transactions will probably always represent a higher level of risk for merchants and card processors, they appear to be here to stay. When you give your customers the option to submit payments remotely, you provide a level of convenience that makes you competitive and enables you to get products to buyers no matter where they may be. Just be sure to put the proper precautions in place, and you will find that CNP payments are worth the modest price increase that accompanies them.