Card-Not-Present Fraud Definition
To reduce card-not-present fraud, credit card payment processors adopt a variety of precautions. These include confirming that the billing address on file with the credit card company matches the address the consumer gave at the time of purchase, validating three-digit CVV security codes, and forbidding retailers from keeping these numbers on file.
On the other hand, the fake transaction could seem authentic if the perpetrator has managed to get these facts.
How Card-Not-Present Fraud Works
When a thief gets access of a cardholder’s name, billing address, account number, three-digit CVV security code, or card expiration date, they may commit card-not-present fraud. Without having the actual card, these information might be electronically stolen.
The most typical ways that credit card information is stolen for use in card-not-present fraud are through internet phishing schemes or through dishonest workers taking credit card information from customers. Hacks into merchant databases are another less frequent way that it happens.
In the event of card-not-present fraud, the merchant is liable for the loss. The bottom line of the merchant may be significantly impacted by this kind of fraud, particularly in the case of retail businesses, which often have lower profit margins.
In contrast, the credit card issuer often pays the loss in cases of card-present fraud rather than the retailer. The credit card issuer will not hold the cardholder accountable for any fraudulent transactions, whether they result from card-present or card-not-present fraud, according to the terms and conditions of the credit card.
How Card-Not-Present Fraud Is Detected
Advanced technology can assist in identifying several attempts at card-not-present fraud. Credit card issuers, for instance, have systems in place to identify credit card purchases that, given the accountholder’s usual card activity, are probably fraudulent.
In order to attempt and identify card-not-present fraud, merchants might take precautions like employing biometric data, such as speech patterns or fingerprints. Additionally, they may attempt to verify a cardholder’s identification by utilizing private data, such as a postal address.
They are unable to quickly identify friendly fraud or online shoplifting, though. In this case, the thief will buy goods online or over the phone, get them, and then dispute them with the credit card company, claiming that the goods are defective or never came. A chargeback is started by the issuer, and the merchant has to refund the fraudulent customer.
How CNP is affecting the economy
Card-not-present data indicates that, in certain countries, it accounts for 75% of all card frauds, making it by far THE most common cause of fraud.
Card-not-present data shows that it is by far THE most prevalent cause of fraud, accounting for 75% of all card frauds in certain countries.
Canadian and American CNP fraud
In 2018, 7.9 million American consumers fell prey to CNP scam.
According to a 2019 survey, this number corresponds to around 3.1% of the adult population in the United States over the age of 18.
In a 2018 research, the U.S. Federal Reserve estimates that $4.57 billion was lost to card-not-present fraud in 2016.
The steady increase in e-commerce transactions in Canada has been the main driver of CNP fraud. In 2015, CNP accounted for 76% of the entire value of card fraud.
In Europe, CNP fraud is 79%.
A staggering 79% of the overall value of card fraud in 2018 came from card-not-present (CNP) payments, according to the sixth report on fraud in the Single Euro Payments Area (SEPA).
In 2018, the percentage of card fraud at POS terminals and ATMs was 15% and 6%, respectively.
With losses of €1.8 billion ($2.17 billion) in 2018, CNP fraud was the biggest fraud category in the eurozone and the only one to show growth (+13% vs. 2017) from the year before.
Greece, Ireland, Italy, Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain are all included in this region.
Fraud with cards not existing in the UK: 76%
CNP in the United Kingdom (which is not a member of the eurozone) was £470.2 million in 2019, a 7% decline from 2018.
In 2019, CNP accounted for 76% of the entire value of card fraud.
Theft of card information (6%), lost and stolen (15%), counterfeit cards (2%), and cards not received (1%), are examples of other scams.
In Australia, CNP fraud is 85%
84.8% of all card fraud in Australia occurred through card-not-present fraud in 2017. With a total of 476.3 million AUD (or €295 million or 330 million USD) in 2017, it represents a +14% increase over 2016. (source: Payments Network of Australia)
Bad news, eh?
The economy and companies may suffer as a result of the CNP scam.
The total value of fraudulent transactions utilizing cards issued inside SEPA and obtained globally was €1.87 billion in 2019, according to SEPA (Single Euro Payments Area). Furthermore, in 2019, CNP was the target of the bulk of fraudulent transactions—nearly 80% of the total amount of card fraud came from CNP transactions.
In the United Kingdom (except from the eurozone), CNP was £470.2 million in 2019.
It may surprise you to learn that 7.9 million customers, or around 3.1% of the US population over the age of 18, fell victim to CNP fraud in 2018.
The Juniper research analysis estimates that until 2023, card-not-present fraud would cost merchants $130 billion worldwide.
Since Card-Not-Present transactions are not sufficiently protected, unlike other payment alternatives, CNP is where the majority of fraud activities, such as consumer data theft, occur. Hackers might simply obtain the pooled card info over the internet.
Frequently, at the moment of the transaction, the card data authentication is not established.
Such data theft damages the business’s reputation. People are reluctant to divulge card details during transactions. Over time, declining income is a result of customers losing faith in and loyalty to a brand. Resolving the CNP fraud concerns also takes a lot of money and effort. Therefore, the merchant suffers a loss of money and reputation as a result of Card Not Present fraud.
Retailers are eventually compelled to increase the cost of their output, stop paying wages, and make compromises on the number and caliber of their staff in order to make up for the financial loss resulting from CNP fraud. Consequently, this had a negative impact on the economy.
How is Identity Fraud affecting CNP?
Card-Not-Fraud can cause colossal damage both to individuals, businesses and banking institutions. The sensitive data shared during the transaction can easily be leaked or hacked. Completely oblivious of the personal data theft, you may continue opening accounts on various platforms.
The databases of traditional and e-merchants are targeted more frequently. Because an e-merchant, unlike a financial institution, does not spend large budgets on security and is not subject to stringent rules.
Their data can be easily transferred to numerous cities or countries worldwide in the dark web market. And may not even get to know the person or place, from where their customer’s Personal identity information (PII) is being used for fraudulent activity.
Therefore, knowing how to detect and prevent CNP fraud at the initial stage is equally important.
Some of the best’ Card Not Present Fraud Prevention Tools are:
- Know your customer(KYC): at the point of signup not only through the documents submitted but also via the nature of activities he is involved in. To gauge whether the source of income is legitimate or not you can look for any engagement with international unsanctioned people, any faulty financial reputation, or recurrent change of place/ business/ Job.
- eKYC: Electronic Know your customer (KYC) is a digital platform used for identity verification. Here the customer verification can be done in seconds. For example, in India the Aadhaar system is the most commonly used eKYC, more than 1.29 billion people are registered under the Aadhar card system.
- Video KYC: To conduct video verification various procedures are involved like Biometric face verification, Liveness Detection, and Real-time document verification methods. So, it’s a complete Audio video verification method
- Biometrics: Software algorithms are used to conduct a face match of the person sitting in front of the camera with the photo ID submitted. It picks up and records minute details of the face such as the shape of the eyes, chin, or nose.
- Liveness Detection: In order to counter any spoofing attacks using biometrics. In this, the person is asked random questions or asked to give side profiles on the video to ensure it’s not a spoofed image but a live person in front of the camera. The captured video is matched with other data or documents.
- Real-time document verification: While the liveness detection is going on the person is asked to give live images of the required documents and the signature. The AI tools instantly match the document images with the customer’s face and signature. The
- Identity Verification tools are so quick that they even extract the ID details provided from the web and verify them with the document.
At IDcentral, we use a combination of top e-commerce fraud prevention processes. It includes video KYC, document verification, and biometric face match through identity checks. Our API is quick enough to extract data from identity or bank cards submitted. Thus, we ensure that the customer is the authentic owner of the card being used in the transaction.
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Philip Chethalan is currently working as Marketing Manager at IDcentral (A Subex Company). He is creative head who loves to read and explore different avenues in the field of Marketing, Branding and Advertising.