In payments, Card Not Present (CNP) refers to a transaction where the cardholder and the payment card are not physically present during the purchase. It typically occurs in online or remote transactions where the card information is manually entered or provided through other non-face-to-face means. CNP transactions also include phone orders (MOTO – Mail Order/Telephone Order) and recurring payments.
Here’s how Card Not Present transactions work:
- Transaction Initiation: The cardholder provides their payment card information, including the card number, expiration date, CVV code (the three-digit code on the back of the card), and billing address, through an online payment form, over the phone, or via other electronic means.
- Authorization Request: The merchant sends the card details and transaction information to the payment processor or acquiring bank for authorization. The transaction details may include the purchase amount, merchant information, and additional data for fraud prevention.
- Verification and Authorization: The payment processor or acquiring bank validates the transaction by verifying the card information, conducting risk assessments, and checking for potential fraud indicators. They route the authorization request to the card network and subsequently to the cardholder’s issuing bank for approval.
- Authorization Response: The issuing bank evaluates the transaction and sends an authorization response back through the payment network, indicating whether the transaction is approved or declined. This response is then relayed to the merchant or payment processor.
- Transaction Completion: If the transaction is approved, the merchant can proceed with fulfilling the order, delivering the goods or services, or providing access to digital content or subscriptions. The funds are typically settled through the normal clearing and settlement processes.
Now, let’s discuss the pros and cons of Card Not Present transactions:
- Convenience: CNP transactions allow customers to make purchases remotely without the need to physically present their card. This convenience is particularly valuable for online shopping, subscriptions, and recurring payments.
- Global Reach: CNP transactions enable businesses to accept payments from customers worldwide, expanding their customer base and market reach beyond physical locations.
- Increased Sales: By offering CNP payment options, businesses can attract customers who prefer online shopping or who may not have access to physical stores. This can lead to increased sales and revenue.
- Fraud Risk: Card Not Present transactions are susceptible to higher levels of fraud compared to in-person transactions. Without the physical presence of the card, there is a greater potential for unauthorized use or stolen card details. Merchants must implement robust security measures to mitigate fraud risks.
- Chargebacks: CNP transactions are more prone to chargebacks, where the cardholder disputes a transaction and requests a refund from the issuing bank. Chargebacks can be costly for merchants due to processing fees, lost revenue, and administrative overhead.
- Compliance and Security: Merchants accepting CNP payments must comply with industry security standards, such as Payment Card Industry Data Security Standard (PCI DSS), to protect cardholder data. Compliance requirements can involve additional costs and efforts for businesses.
It’s important for businesses to implement fraud prevention measures, use secure payment gateways, and adopt technologies like tokenization and encryption to enhance the security of Card Not Present transactions and minimize the associated risks.