Best practices for card not present chargebacks
Card not present transactions: what are they?
Like it sounds, a card-not-present transaction (also called a CNP transaction) occurs when a credit card or debit card is not physically present during a transaction. There are a variety of reasons why a transaction may be a CNP transaction. For example, maybe your business only provides takeout, and customers can place their order online or give you their card details — like their credit card number, expiration date, and security code — over the phone. These are both CNP transactions because the card is not present at the business when the transaction is happening.
Here are a few other examples of CNP transactions: invoices that a customer pays to business owners like you online, a recurring payment for goods or services that bills automatically, mail orders, ecommerce transactions and card-on-file transactions.
In contrast, in person payments are known as card present transactions. For a card to be a card present transaction, the payment has to happen in person at the time of the sale. Card present transactions involve credit card processing at the point of sale (POS) system or payment terminal. Customers use their physical credit card to pay, swiping in the magnetic stripe card reader or by using an EMV chip card to tap to pay or another contactless payment method like Apple Pay or Google Pay.
Because a physical card is not present during a CNP transaction, it makes it easier for customers to buy things even if they don’t have their physical card. However, it also makes it easier for fraudsters to get their information and use it at your business. Payment processors, card brands, and issuing banks all know these types of transactions have a greater risk for fraud because cardholder information is more difficult to verify in these types of transactions. That means there’s a higher risk of chargebacks as well. Let’s take a look at three types of CNP chargebacks your business could encounter.
Three common types of card not present chargebacks
Now that you know more about card not present transactions, let’s talk about the most common types of card not present chargebacks you’ll experience at your business.
Criminal fraud chargebacks
These types of chargebacks happen when a fraudster steals someone’s credit card information. They often don’t have to even have the credit card in question. While you may not be able to completely stop this type of chargeback, you can help to prevent it.
With CNP fraud, fraudsters will try to maximize the purchases they make in a short period of time before someone catches on to the fraud. So new orders or larger than normal orders should require more of your attention to confirm they are legitimate orders. Fraudsters also may use multiple cards with different numbers shipped to the same address. You can also use fraud prevention tools to help you verify the cardholder and their information. These tools give you a way to double check your customers, providing another layer of authentication.
- Address verification service (AVS): This gives you the opportunity to compare the billing address the customer gave you during the transaction to the billing address the customer listed at the issuing bank. If the address the customer provides doesn't match the address on file at the card issuer, you can decline the card and avert fraud.
- Card security codes: These are the three or four digit (Amex only) numbers on the back of the customer’s credit card, usually around the signature panel. Each credit card network calls it something different: CVV2 for Visa cards, CVC2 for Mastercard, and CID for Discover and American Express. Requiring these CVC, CID, or CVV numbers ensures that the customer has the card in their possession when making an online purchase.
Merchant error chargebacks
In this type of transaction, you should keep a close eye on the transaction you are processing. It’s important to submit transactions in a timely manner and to only process the transaction once. If you run an ecommerce business, it’s paramount that your product descriptions and photos clearly and accurately reflect the actual products. You should also ensure your billing descriptor is accurate and reflects your actual business name. Otherwise, you may be susceptible to unhappy customers and more chargebacks as a result.
Friendly fraud chargebacks
To avoid these types of chargebacks, it’s important to communicate your company’s policies regarding returns and exchanges. It’s also important to have safeguards like delivery confirmation in order to ensure you’re protecting yourself from these scenarios. If not, the best way to dispute these chargebacks is through the chargeback representment process.
Now that you know more about common types of chargebacks and why they happen in card-not-present transactions, let’s talk about the best practices for accepting CNP transactions at your business.
CNP transaction best practices
Never save customer data on unsecured platforms
Present your business information clearly
Confirm the customer’s address with the AVS
Know the current PCI compliance guidelines
In this article, we talked about the best practices for accepting card not present payments at your business. Now, you’ll be able to help spot and prevent fraud while protecting your lifeblood, your business.
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