Card Not Present Fraud: What It Is and How to Protect Your Business

Accounting for 73% of all credit card fraud, card-not-present (CNP) fraud poses a significant and costly threat to merchants. ^[1]eMarketer. “Card-not-present fraud to make up 73% of card payment fraud.” Accessed May 7th, 2025. Today’s business owners face a challenging trade-off: CNP transactions are highly vulnerable to fraud, but relying solely on card-present transactions limits you to only servicing in-person customers, capping customer convenience and business growth. The good news is that you can confidently embrace card-not-present transactions by deploying security measures to specifically guard against CNP fraud. In this post, we’ll explore CNP fraud — what it is, how it works, and, most importantly, how to prevent card-not-present fraud.

• Card-not-present fraud occurs when stolen credit card information is used to make unauthorized purchases online, over the phone, or through mail-order
• A fast-growing headache for business owners, CNP fraud can result in significant financial losses and reputational damage
• Implementing tools like address verification, multi-factor authentication, and transaction monitoring measures can help prevent CNP fraud
• The sooner you deploy a comprehensive card-not-present fraud prevention strategy, the better for your business and bottom line

Understanding Card-Not-Present Transactions

To understand when you’re at risk of card-not-present fraud, you must first understand what constitutes a card-not-present transaction. A CNP transaction occurs when a customer buys goods or services online, over the phone, or through mail order without physically presenting their card to swipe, insert, or tap. Many businesses accept CNP transactions due to their simplicity and convenience, but they’re inherently riskier than card-present transactions.

What Is Card-Not-Present Fraud?

Card-not-present fraud is when someone uses stolen credit card information to purchase without the cardholder’s permission via phone, mail order, or online. 

Advances in payment technology have proven to be a double-edged sword for merchants: You can expand their consumer base with the accessibility of CNP transactions, but doing so raises exposure to CNP fraud. Likewise, consumers have benefited from the increased accessibility and convenience of CNP transactions, yet they’re now increasingly victims to credit card fraud even while still in possession of their card. In fact, as many as 92% of fraudulent charges occur while the physical card is still in the possession of the legitimate cardholder, highlighting the prevalence of CNP fraud. ^[2] Security.org. “62 Million Americans Experienced Credit Card Fraud Last Year.” Accessed May 7th, 2025.

How Does Card-Not-Present Fraud Occur?

Card-not-present fraud occurs when credit card information is utilized to make unauthorized transactions via a CNP transaction. However, you are unlikely to know you’ve accepted a fraudulent card-not-present transaction until you’ve gotten a chargeback notice.

Typically, cardholders don’t know they’ve been the victim of CNP fraud until they receive a notification of charges they didn’t approve. After which, they’ll likely file a chargeback with their card issuer to dispute the unauthorized charges. Only after the chargeback dispute is filed — usually well after you’ve delivered the goods or services — will you, as the business owner, learn the CNP transaction was fraudulent.

The Impact of CNP Fraud on Businesses and Consumers

In the event of CNP fraud, both the business and the cardholder are victims. Below, we explore the consequences for both parties.

Your Business 

• Lost Goods and Cash: Due to the timeline of CNP fraud, you’re likely to have shipped the product well before receiving a chargeback notification. In addition to product loss, you’ll incur revenue loss via refunding the defrauded cardholder and chargeback fees.
• Destroyed Reputation: Put yourself in the defrauded cardholder’s shoes: They did receive any goods or services from your establishment, yet their records show a charge from your business. Even though you were an unknowing participant, card-not-present fraud can tarnish your brand’s reputation simply by association.
• Higher Fees and Fines: In the event your business is a frequent victim of CNP fraud, your payment solution provider may categorize your operation as a high-risk business and impose higher credit card processing fees. This is in addition to the chargeback fee you’ll be charged for each instance of reported CNP fraud. Overall, card-not-present fraud can prove very costly for business owners.

Consumers 

• Irreparable Loss of Trust: Again, put yourself in the defrauded cardholder’s shoes. Perhaps the first time they heard of your business was when they saw unauthorized money had been taken from their account for a purchase they didn’t make. It’s not a great first impression of your brand, to say the least. This can result in negative word-of-mouth for your business, as 50% of customers who’ve had a poor experience with a brand share the news with their friends and family. ^[3]Qualtrics XM Institute. “Global Study: Consumer Feedback Channels, 2024.” Accessed May 7th, 2025.
• Significant Financial Losses: If a high-ticket item is purchase via CNP fraud, the defrauded cardholder faces significant financial losses. While they may initiate a chargeback to recoup these losses in the long term, the cardholder may face a short-term cash flow crunch until the dispute reaches resolution.
• Identity Theft Nightmares: Beyond shopping sprees, fraudsters may find other benefits from stolen card information. Credit card details associated with an account balance up to $5,000 can be sold for about $110 on the dark web. ^[4]Privacy Affairs. “Dark Web Price Index 2023.” Accessed May 7th, 2025. . As such, victims of credit card fraud often have to deal with the headache of setting up new card credentials, as their original card has been irrevocably compromised.

Common Methods Fraudsters Use for CNP Fraud

As stated above, most fraudulent charges occur while the cardholder is still in possession of their physical card. Below are the four most common methods bad actors use to obtain credit card details and commit CNP fraud.

1. Phishing and Social Engineering Scams

Most people are familiar with the boilerplate phishing scams prompting them to relinquish their card details to claim prize money or help a wealthy person in a jam. However, the advent of AI has enabled fraudsters to use the likeness of family, friends, and coworkers to execute more emotionally compelling, seemingly realistic phishing tactics and successfully obtain card details. 

2. Skimming and Data Breaches

In 2024, over 1.35 billion individuals were affected by data compromises. ^[5]Statista. “Annual number of data compromises and individuals impacted in the United States from 2005 to 2024.” Accessed May 7th, 2025. Because today’s businesses are responsible for treasure troves of personal and financial consumer information, implementing effective security strategies is an imperative. Additionally, consumers should double-check they’re on the correct checkout page, as scammers may utilize checkout pop-ups to skim card details. 

3. Account Takeovers

Be it utilizing a predictable password or reusing the same password on every account, there are account owners who fail to employ strong measures to keep their accounts secure. Likewise, if they’re using a password manager, they should confirm security measures are being used to protect against data breaches. The minute fraudsters unlock an account and reset the password, they’ve taken over the account.

4. Identity Theft

The FTC reports that over 1.1 million people fell victim to identity theft in 2024, with $12.5 billion in losses. ^[6] Federal Trade Commission. “New FTC Data Show a Big Jump in Reported Losses to Fraud to $12.5 Billion in 2024.” Accessed May 7th, 2025. In the event of identity theft, a bad actor uses personal details to create accounts in someone’s name without their knowledge. If a card is opened via identity theft, this can result in CNP fraud.

Preventing Card-Not-Present Fraud

Scammers often leverage technology to commit more advanced fraud, but technology can also be leveraged to protect against fraud. Below are some fraud prevention tactics you can employ within your payment technology to successfully protect against card-not-present fraud.

Implementing Address Verification System (AVS) and CVV Checks 

Address verification system (AVS) automatically checks to see if the provided billing address matches what’s on the card owner’s file. If it doesn’t, it’s flagged. Additionally, the credit verification value (CVV) is a three-digit code on the back of the card. If the owner fails to provide the correct code, it’s also flagged. Because these credit card authentication mechanisms aim to verify information only the legitimate cardholder would know, they’re effective measures for safeguarding against CNP fraud.

Utilizing Multi-Factor Authentication (MFA) for Transactions 

Multi-factor authentication (MFA) adds an extra layer of protection to your transactions via a unique code sent to your customer’s phone. This security layer works to protect your business against CNP fraud because it requires access to the legitimate cardholder’s phone.

Leveraging Artificial Intelligence (AI) and Machine Learning for Fraud Detection

While bad actors have leveraged AI to execute more effective scamming tactics, businesses can leverage AI to limit CNP fraud exposure. In fact, 73% of businesses globally utilize AI for credit card fraud detection. ^[7]Biocatch. “2024 AI, Fraud, and Financial Crime Survey.” Accessed May 7th, 2025. It’s an efficient method for spotting odd patterns suggestive of fraud with real-time alerts and analytics.

Ensuring PCI DSS Compliance

Compliance with Payment Card Industry Data Security Standard (PCI DSS) standards ensures your business is adhering to strict rules for securing credit card processing data. By combining PCI DSS compliance with a reliable payment gateway, you’ll secure your transactions against data breaches. 

Detecting and Responding to CNP Fraud

It’s common for business owners to realize they were an unwitting victim of CNP fraud only once the defrauded cardholder initiates a chargeback to recoup their unauthorized funds. However, if you suspect CNP fraud has occurred beforehand, responding fast can help mitigate the negative effects. Below are some proactive steps to take in regards to CNP fraud prevention:

• Monitor Transactions for Unusual Patterns: If a repeat customer usually spends $50 USD at your business, but then they suddenly drop $1,000 USD in one purchase, that should raise eyebrows. Set up alerts for unusually large tickets, rapid-fire purchases, or odd locations. 
• Take Immediate Action on Suspected Fraud: Speed is your friend when it comes to stopping CNP fraud. If you spot a fraudulent purchase, flag it, do not ship the product, and stop processing the transaction. This will help circumvent the associated chargeback. 
• Communicate with Affected Customers and Financial Institutions: Loop in the affected customers and their financial institutions. By being transparent and acting fast, you can limit the damage. Additionally, your payment solutions provider should assist in addressing and eliminating card-not-present fraud.

Strengthen Your Fraud Prevention Strategy Today 

Accepting card-not-present transactions helps your business remain competitive in today’s market. However, it also makes you more vulnerable to one of the most prevalent modern-day payment issues. At PaymentCloud, we believe you deserve to accept card-not-present transactions with confidence. That’s why we focus on helping business owners thrive with our tailored security solutions and hands-on support for chargeback mitigation tactics. Dive into our advanced fraud prevention strategies today and start accepting card-not-present transactions with peace of mind.

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