What are card-not-present transactions and how to accept them?

As an ecommerce merchant, you are now able to take full advantage of the expanded customer pool and broadened reach that the internet has brought to the world. At the same time, what you may not fully realize is that this same technology has placed a target on your back, making you significantly more vulnerable to cybercrime. In short, the blessing and the curse for online businesses comes in the form of card-not-present credit card transactions.

What are card-not-present transactions?

When you receive a customer’s funds remotely instead of having access to the physical card, this is known as a card-not-present (CNP) transaction. Although the most common type of CNP transaction happens when people make purchases online, they also occur when you take payments over the phone or enter someone’s payment details online yourself for any other reason such as completing a mail order transaction. In order to take your customers’ electronic payments, you must partner with a processing company that can provide you with the hardware, software, and merchant accounts that are required.

Not all merchant account providers are alike. They vary in the fees they charge, the contracts they may require you to sign, the industries in which they specialize, and the payment features they offer. Before you commit to working with one, be sure that you read the fine print and have a complete understanding of what they have to offer as well as your rights and responsibilities.

Tips for accepting card-not-present payments.

Once you have obtained and implemented the point of sale equipment and software from your payment processing provider, you can begin accepting CNP transactions right away. The following suggestions should help you to integrate your new systems into your business operations.

• Understand what customer details need to be gathered during check-out. These include billing and shipping addresses, phone number, the cardholder’s name as it appears on the card, card number, expiration date (month and year), and the security code (CVV) that appears on the back of the card.
• Understand fees. Because you do not have direct physical access to your customer’s card, you cannot verify its authenticity. This makes you more vulnerable to fraud. As a result, you can expect the fees that your account provider charges to be higher for CNP transactions. Specifically, you will pay a larger per-transaction fee as well as a potentially higher fixed rate to cover the cost of fraud prevention.

In spite of the added risks that CNP transactions pose, it is virtually impossible to function in today’s commercial climate without integrating them into your business model. Your chances of success increase when you also work hard to reduce your vulnerability to CNP-related crime.

What is CNP fraud?

CNP fraud occurs when a criminal uses someone else’s stolen or compromised card to make a remote credit card purchase. Another common type of fraud occurs when a legitimate customer claims to have received a faulty product — or no product at all — and immediately goes to their credit card company for a refund instead of first trying to resolve the situation with the merchant. Known as chargeback fraud, this deliberate or even “friendly” crime costs merchants in time, stress and lost revenue and could even result in the closure of their merchant account in extreme situations.

How to avoid remote payments fraud.

If you want to gain and keep your customers’ trust and remain in compliance with industry standards, you must do everything you can to keep CNP fraud from happening. Integrating the following practices into your business model will give you the tools you need to keep fraud at bay.

• Ensure that you and the companies you partner with are in compliance with the Payment Card Industry Data Security Standard (PCI DSS). This security standard put forth by the major card companies is designed to protect the cardholder’s data by requiring businesses to implement network security as well as to create and follow policies, procedures and practices.
• Use the Address Verification Service (AVS) for every transaction. This system compares the numeric portion of the billing address and zip code entered by the customer during checkout with the information on the credit card on file with the issuer. In the case of a mismatch, AVS will send a code to the merchant.
• Validate security codes. These three- or four-digit numbers appear on the back of the credit card and should be requested for every remote transaction. This provides an extra layer of security since most fraudsters don’t have access to the CVV.
• Reduce billing confusion. Many chargebacks occur because buyers don’t recognize the name of a particular business on their credit card bill. You can reduce the likelihood of a chargeback related to these misunderstandings by making sure that the name of your store appears on their credit card statement.
• Prominently display a clear, thorough returns and exchanges policy on your website. Customers should know exactly what to expect if they are dissatisfied with something they bought from you. Clearly outline the steps involved in sending back or exchanging merchandise, including any time limits or other restrictions. Also, encourage shoppers to contact you directly with any questions or concerns. Doing these things should help to prevent fraud in the form of time-consuming chargebacks.
• Keep records of each transaction, including cardholder’s name, expiration date, billing and shipping addresses, and confirmation that the CVV and AVS matched. It is also helpful to take down the date of the sale, the customer’s contact information and other order and delivery details.

Although you can never totally prevent CNP fraud, taking these actions will definitely make you less susceptible to it. Moreover, it will ensure that you have the details on hand to respond to chargebacks when they occur.