Card Not Present (CNP) Fraud: Learn How to Detect & Prevent It

Melissa AU Team | Australia, Fraud Prevention | , ,

E-commerce is no longer limited to big brands. Everyone from the neighborhood cafe to the handicraft retailers has built an online presence for themselves. E-commerce is thriving! But, as it grows, so do the instances of fraud.

According to a study, Card Not Present (CNP) fraud accounts for 70% of all fraud losses. In 2020, this amounted to $19.43 billion worldwide. It’s a risk that can’t be taken lightly and merchants around the world have realized the need to adopt measures to protect themselves.

What Is Card Not Present (CNP) Fraud?

As the name suggests, this is a type of fraud that occurs when the customer does not present a physical payment card to the merchant. This typically occurs via online transactions or over the phone.

CNP Fraud refers to instances when a fraudster makes a purchase with a customer’s payment details that have been illegally obtained through hacking databases, phishing scams or skimming the card details from systems where it has been used legitimately.

The stolen details could include the customer’s credit card number, 3-digit security code as written on the back of the card, etc. They can then uncover the customer’s complete profile and payment details via the dark web.

When it comes to the merchant’s point of view, the issue lies with chargebacks associated with CNP fraud. This refers to the customer raising a dispute about the payment after which the credit charge goes through the system to end up with the merchant along with additional fines and charges. On average, CNP chargebacks cost merchants $3.60 for every $1 value of the transaction.

Detecting And Preventing CNP Fraud

  • Be Thorough With KYC Checks

Irrespective of the industry, merchants need to know their customers and assess individual risks of fraud. For this, they need to be stringent about Know Your Customer (KYC) checks. Complying with KYC requirements makes it easier for companies to ensure that the online persona being dealt with matches a real-world identity.

Manually calling customers to ensure that their phone numbers are legitimate or asking them to authenticate emails can be cumbersome. Instead, you need to work with an identity verification service provider who can compare the personal details entered by the customer against reliable third-party databases. An enhanced KYC program could also include Video KYC, biometric verification, real-time document verification, IP address checks, etc.

  • Verify Addresses

In many cases of CNP fraud, orders are placed with delivery addresses other than the ones normally used. Hence, it is important to verify all addresses before adding them to a CRM database. Rather than attempting such a mammoth task manually, you can use an address verification tool.

An address verification tool confirms that the address entered is correct, valid and linked to the intended recipient. It also enriches data to fill in missing information such as a missing pin code or updating outdated street names to ensure that addresses are deliverable.

It could also help create a more complete customer profile by using the address to identify other details such as the customer’s phone number.

  • Identify Transaction Patterns

One of the easiest ways to detect fraud is when the transaction does not match the activity pattern usually followed by the customer. For example, you may want to confirm an order paid by credit card for a customer who usually pays for orders on delivery. A deviation from patterns could be identified in many ways including:

  • Unusual shopping mode
  • Unusual time of placing an order
  • Transaction values that are significantly higher than usual
  • Multiple orders placed simultaneously
  • Orders with different delivery addresses
  • Order for products that do not match the usual orders
  • Once patterns are identified, you could set a system of automated alerts for deviations such as flagging higher-cost transactions or limiting the number and value of transactions.

  • Highlight Remarkably Small Transactions

Transactions for very small amounts often fly under the radar and are considered unimportant. However, many fraudsters take advantage of this assumption to test out stolen card details.

They may purchase inexpensive products or services and once the transaction is completed follow through with more expensive purchases.

Thus, identifying purchases for very low-value orders can help prevent larger fraud transactions. Highlighting these purchases becomes more important when the purchase is being made by a new customer.

Use Online Security Tools

There are many security tools available online that can help your business stay protected against CNP fraud. For example, using data encryption services ensures that your customer data such as credit card numbers, addresses, etc. stays safe and protected from hackers.

According to the PCI Security Standards Council, merchants must protect customer credit information in the interest of their customers and the company. Some of the ways to do this are:

  • Build a secure payment network
  • Use encryption or other tools to protect cardholder information
  • Implement strong measures to control access to customer data
  • Monitor and test networks regularly

In conclusion

CNP fraud doesn’t only affect individual customers, it affects businesses too causing a loss of revenue as well as reputation. While giving customers a smooth experience is important, it cannot be at the price of your business. In many cases, the money lost by retailers as well as the products are never fully recovered.

Hence, any potential instances of CNP fraud must be taken seriously. It is better to ask customers for additional authentication rather than process a potentially fraudulent transaction. Taking such security measures in addition to maintaining a high-quality customer database and adhering to KYC norms can minimize the risk of being victimized by such fraud.