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Card Not Present Payments: What It Is & How To Prevent Fraud

By Harris Nghiem
Published Apr 5, 2025
Card Not Present Payments: What It Is & How To Prevent Fraud
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These days, we look for the most convenient option when it comes to paying for goods and services. And many times, we’re not actually in a physical store. Online payments have boomed as the Internet has become a literal sweet shop for everything we could possibly ever need or want. 

With all of this in mind, it’s unsurprising that card-not-present payments are one of the most common transactions. This is most often done online, but it can also include telephone orders. However convenient these payments are, they don’t come without their challenges. According to a MasterCard study, 72% of customers are concerned about the safety of their saved card details. Additionally, as payments become easier, customers feel a certain loss of control, which may lead to more disputes. 

As a business owner, it’s important to understand not only the importance of card-not-present payments but how they work. That way, you can leverage them to bring greater success to your business, while navigating the challenges of high-risk payment processing. Of course, PayCompass is on hand to help you every step of the way, offering dedicated high-risk merchants accounts that are designed to solve the problems that make your business life difficult.

The Evolution of CNP Transactions

Before we get into the main details of how card not present transactions work, let’s talk about how they’ve evolved over time. It’s certainly interesting to see how we’ve moved from completely manual means to technological methods that seemed unimaginable just a decade or two ago. 

Let’s go on a journey to today’s CNP transactions, exploring the history of his convenient payment method.

From Mail Order to Digital Dominance

Mail order purchases were the biggest trend in the 1980s, with billions of products ordered this way annually. Yet, even at that time, it was understood that payment could be facilitated in a much smoother way. Hence the first secure online transaction using data encryption in 1994. This was a groundbreaking moment that opened the doors to a further payment technological movement. In 2024, digital wallets accounted for around 50% of global e-commerce transactions, equating to more than $3.1 trillion. 

The Rise of E-commerce and Mobile Payments

The prevalence of smartphones and tablets was the main driver behind mobile commerce becoming the powerhouse it is today. It’s entirely possible that you often make purchases using your phone, and this is a common trend across society. It’s convenient and it’s easy to simply sit and scroll, find something you want to buy, and click to pay. 

Of course, these types of payments aren’t always about items you want to buy but also about general life. Consider ride sharing apps. Users download an app, share their details, and one-click payments can be facilitated at the end of every ride. It’s this smooth convenience that has prompted an increasing number of people to use this type of payment system. 

The Impact of Social Commerce

We can also talk about social commerce, driven by social media platforms. Sites such as Facebook, Instagram, and especially TikTok aren’t just places to chat and connect, but also to buy items. In general, people are more likely to buy products if their favorite influencer or celebrity endorses them. The numbers back this up, as by 2027, social commerce sales are predicted to hit $604.5.  

Yet, while all of this sounds very positive, there is also a negative side. An increased number of card-not-present transactions means a higher chance of fraud. However, choosing the right high-risk merchant provider can help you minimize the risk to your business.

The Changing Face of Card-Present Transactions

As the number of card present vs card not present transactions has grown, the so-called “old” ways have adapted to keep up with the competition. This has created a unique interplay between payment types. 

It’s certainly not the case that card present transactions have disappeared, in fact they still account for a large chunk of global payments. However, contactless payments have increased since the COVID-19 pandemic, with the trend holding strong ever since.

The Anatomy of a CNP Transaction

It’s easy to see card-not-present transactions as a simple input of details, but there are many components and stakeholders involved in the entire process. Let’s break it down and explore the full story from the start of a card not present transaction to the end via the table below.

Step Description Key Players
1. Initiation Customer enters payment details Customer, Merchant
2. Encryption Data is encrypted for transmission Payment Gateway
3. Authorization Transaction is approved or declined Issuing Bank
4.Authentication Additional security checks (if needed) 3D Secure Provider
5. Settlement Funds are transferred Acquiring Bank, Card Network
6. Reconciliation Transaction is recorded in merchant’s system Merchant, Payment Processor

The Psychology of CNP Payments

The lack of a physical card in this type of payment can add specific psychological factors to the experience. These influence both fraud patterns and general customer behavior. 

Whether or not a customer trusts a transaction when the card isn’t present depends on several factors, and visual cues and security are two of the main ones. 

Ultimately, many customers place convenience before security but many a bad experience may cause them to walk away and go elsewhere. For that reason, security must be at the forefront of your mind to build customer trust. 

The Dark Side of CNP: Fraud and Chargebacks

Image of a fraudster using a computer to affect a cardholder or business.

Card not present payments are particularly vulnerable to sophisticated fraud tactics.
Source: Pexels

CNP transactions aren’t all positive. While they are certainly extremely useful and commonplace these days, they do have a downside, and that comes in the form of vulnerabilities. 

This type of payment is susceptible to fraud and a higher instance of chargebacks. In fact, studies show that card not present fraud is likely to hit $49 billion globally by the end of 2030. For that reason, it’s important to understand the different types of CNP fraud and how they impact your business.

The Evolving Landscape of CNP Fraud

Criminals obviously don’t want to get caught, and to ensure that doesn’t happen, they regularly change and adapt their strategies to spot and exploit vulnerabilities. Let’s take a look at the latest trends to be aware of.

Account Takeover Fraud

A very common type of CNP fraud occurs when a criminal gains access to a customer’s account. This can lead to huge losses on the customer’s side and seriously affect trust in the merchant the customer purchased goods and services from.

Friendly Fraud and Its Consequences

Friendly fraud might sound harmless, but it’s not. This is when a customer disputes a valid charge and it has become an increasingly large problem for merchants. A huge 60-80% of chargebacks are due to friendly fraud, costing businesses a huge amount over the course of just one year. The problem is that this type of fraud is extremely difficult to identify without sophisticated fraud detection systems in place. 

As a high-risk business, you probably understand the intricacies of chargebacks all too well. These are troubling on many levels and disrupt your business in several ways. That’s why PayCompass’ high-risk merchant accounts come with chargeback protection to give you extra peace of mind.

Innovative Approaches to CNP Fraud Prevention

It’s clear that CNP fraud is a big issue and many traditional fraud prevention methods aren’t as effective as they could be. In this case, cutting-edge solutions are required. Let’s explore some of the best options now. 

Machine Learning and AI in Fraud Detection

With the fast development of AI and machine learning algorithms, CNP fraud detection is becoming more successful. These algorithms can analyze transaction patterns in real-time and spot any unusual behavior. From there, it flags transactions and gives you the time to take action. In fact, machine learning algorithms are so powerful that they can process around 100,000 transactions every second; something the human brain could never imagine being able to do.

This certainly increases accuracy and the likelihood of catching a potentially fraudulent issue. 

Biometric Authentication in CNP Transactions

Using biometric data is another line of defense against card not present fraud. This includes facial recognition or fingerprints, creating a robust wall of defence around card not present payment processing.

The Future of CNP Payments

Technology never sleeps, and that means new innovations for card not present payment processing appear all the time. Let’s take a look at some of the most common trends and technologies on the horizon.

The Rise of Alternative Payment Methods

The prevalence of traditional credit card payments looks set to reduce as time goes on, and these are being overtaken by alternative methods within the CNP arena. One such trend is buy now, pay later services, which have increased as time has gone on. P2P payment platforms are another trend to watch carefully, along with QR code payment systems, which offer a larger amount of convenience.

Cryptocurrency and CNP Transactions

Cryptocurrencies have increased in popularity over the last few years and despite their volatility, they show no signs of slowing down. Many companies now accept crypto as a valid payment method, and this also adds new nuances to CNP payments. 

On average, the processing fee for a cryptocurrency payment is 1%, with a 2-3% fee for credit card payments. With crypto, payments often finalize within minutes, whereas traditional bank transfers take much longer, often days. 

The Potential of Open Banking in CNP Payments

Another option to consider is open banking initiatives. These are showing new potential avenues for card not present payments, which could go some way to reducing fraud and boosting the entire customer experience. 

The biggest plus point here is that open banking could reduce payment processing costs, in some cases, by as much as 90%. Many customers and small businesses have chosen to use this option so far, reducing the need to pay inflated fees for a smooth service.

The Regulatory Landscape of CNP Transactions

Financial regulations constantly shift and change, so it’s no surprise that the same thing happens with CNP payments. Staying up-to-date with these regulations is vital as a business owner, to ensure that you remain in compliance. Let’s take a look at some of the most important things to know and how these affect the overall payment processing arena. 

Global Variations in CNP Regulations

Image of a globe, representing the global regulations associated with CNP payments.

Issues such as a card not present chargeback can complicate CNP payments, alongside global differences in regulations.
Source: Pexels

There are different regulations across different regions, which makes it challenging if you sell your goods or services across borders. It’s important not just to be in compliance with the regulations in your physical area, but where you sell too. 

Due to the rise in e-commerce, many countries have their own regulations in relation to it. On average, cross-border e-commerce transactions must meet more than one, sometimes up to three, different regulatory frameworks. Of course, focusing on compliance is essential, but it can increase your operational costs.

The Impact of GDPR on CNP Data Handling

The European Union implemented GDPR regulations to protect data and this regulation has far-reaching effects on how CNP data is collected, stored, and processed. Of course, this goes beyond borders; if you are situated outside the EU but you sell to a customer within it, you need to comply with GDPR regulations.

The Role of Industry Standards in CNP Security

Alongside global regulations, industry standards also play a huge role in ensuring security and best practices. One of the main regulations to understand is PCI DSS compliance. 

This stands for Payment Card Industry Data Security Standard and is designed to protect your customers’ financial data. Any business that stores, processes, or transmits any credit card information, whether the card is present or not, are subject to these regulations. Measures include encryption, maintaining secure networks, and regularly testing security systems. In addition, employees must be regularly trained and updated on data protection practices.

The Economics of CNP Payments

Traditional card and CNP payments have different dynamics and these can influence not only your business model but also customer behavior. One of the biggest impacts is on card not present fees

Because CNP payments are often more expensive for the merchant to process, this difference is passed down to the customer. In general, CNP transactions are 15-30% more expensive for merchants than regular card transactions.

The True Cost of CNP Acceptance

It’s not only standard fees that are an issue with CNP payments, but hidden expenses too. These can impact upon your profit margins quite significantly, so understanding them fully is vital.

The Impact of Interchange Fees on CNP Economics

Interchange fees are a considerable expense, at generally around 0.3-0.5% higher than regular transactions when the card is present. If your sales are high, this small percentage can add up to a considerable amount over time.

Risk-Based Pricing in CNP Merchant Accounts

Many payment providers employ risk-based pricing models on CNP merchant accounts. Within this, high-risk businesses face extremely high fees, often up to 5% per transaction. 

For this reason, choosing the right merchant account is the first step. At PayCompass, our high-risk accounts are designed to counteract your high-risk status. We’re a suitable PayPal alternative because we accept high-risk transactions and have chargeback protection, whereas PayPal doesn’t accept them and often freezes accounts with a high-risk status.

The User Experience Dimension of CNP Payments

How a card-not-present payment interface is designed and implemented can significantly affect the customer experience, and ultimately, business performance. If the interface is smooth and intuitive, it can improve overall conversion rates. Additionally, if the interface is optimized for mobile purchases, customers are far more likely to complete a purchase. 

A smooth user experience is also important in preventing chargebacks in the card-not-present space. Of course, you know these can be costly and can affect business performance over time.

The Psychology of Abandoned Carts in CNP Transactions

Abandoned carts can occur for a number of reasons, but understanding the underlying cognitive reasons can give you information to help avoid it happening in the first place. 

According to Statista, the average cart abandonment rate for online shopping in general is around the 70% mark. This is a huge amount of lost sales and unexpected costs are one of the main triggers. Whenever an unexpected fee appears at the checkout stage, customers often decide not to go ahead. For that reason, being upfront about costs before it gets to that point is vital. 

The Impact of Payment Method Diversity on User Experience

When you offer a larger range of payment options, it boosts the overall customer experience. Of course, this is because you add flexibility to the checkout process. Yet, it also adds extra complications to backend systems and can make fraud prevention more difficult. Approaching this subject carefully is key, but by offering more payment options, you open yourself up to a wider customer base, making the risk worth the extra effort. 

Accessibility Considerations in CNP Payments

It’s not enough to just offer CNP payment systems; you need to make sure that they’re accessible to all, including individuals with a disability. This isn’t a courtesy but a legal requirement, and by ensuring you offer accessibility features, you will not only increase site traffic but build customer satisfaction and loyalty.

Voice-Activated CNP Payments

Voice assistants are a very powerful addition and create new opportunities in the card-not-present transaction process. With technological advancements taking place all the time, the accuracy of voice recognition is extremely high, almost to the point of human accuracy.

How PayCompass Secures CNP Payments

Screenshot of PayCompass’ homepage showing the range of features on offer.

PayCompass offers high-risk merchant accounts and a range of features designed to suit your specific situation.
Source: Pexels

At PayCompass, we’re more than aware of the complications involved in running a high-risk business, especially when you add CNP payment processes into the mix. That’s why we’ve designed our services with your challenges in mind. 

Our platform offers fast acceptance, dedicated accounts, chargeback prevention, and real-time monitoring. All of this allows you to follow transactions every step of the way and quickly spot any anomalies that require action. Put simply, this forms part of your comprehensive CNP fraud solutions and puts your business in a much stronger position. 

Of course, our chargeback prevention also helps you reduce the number of chargebacks you experience, protecting your revenue, and maintaining a positive rapport with your customers. 

If you’re ready to streamline your payment processes and overcome the problems that come alongside your high-risk category, reach out today. Simply fill in our contact form and one of our experienced experts will be in touch to help you get started. 

Learnings Recap

Throughout this guide, we’ve talked at length about CNP payments. By this point, you know what is a card-not-present transaction, their prevalence, along with their pros and cons. It’s true that CNP payments have many clear benefits, but they also create a range of challenges. These include the need for CNP fraud protection and full oversight to avoid financial losses and payment processing issues. 

Over the last few decades, payment processes have evolved in a big way. These days, we spend more time online than ever before, which means we purchase our goods and services in the same way. CNP payments have boomed because of the digital age, bringing your business to more people than ever before. From fraud protection to regulatory compliance, there certainly are elements to these payments that must be adhered to carefully, yet their benefits are hard to ignore. 

As technologies continue to develop, the future of card-not-present payments looks bright, and its effects on your business could be extremely positive too. Of course, PayCompass is on hand to help you in all your payment processing needs. Simply reach out and get ready to revolutionize your financial approach. 

Ready to Transform the Way You Do Business?

Don’t settle for less when it comes to payment processing. With PayCompass, you get smarter, faster, and more reliable solutions tailored to your unique needs. Join thousands of businesses who trust us to keep their business moving forward.

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