What is a card-not-present (CNP) transaction?

A card-not-present (CNP) transaction is when a credit or debit card payment is made with neither the cardholder nor the payment card physically present. This means cardholders do not swipe, insert or tap the card to pay for a product or service but, instead, verbally provide or manually input card data, such as the cardholder name and the card’s number and expiration date.

Featured credit card processing offers

Stax

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Via Stax’s website

Monthly fee

$99

Swiped transaction fee

7¢ to 10¢ + interchange rate

Merchant One

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Via Merchant One’s website

Monthly fee

$13.95

Swiped transaction fee

0.29% to 1.55% per transaction

Payment Depot

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Via Payment Depot’s webiste

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$0 Setup & No Cancellation Fees

Pricing

Customized Interchange+ Pricing – Rates as low as 0.2% – 1.95%

Clover

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Via Clover’s website

Monthly fee

$14.95

Swiped transaction fee

2.6% + 10¢

What does a card-not-present (CNP) transaction mean?

Card-not-present (CNP) transactions happen when a customer pays for goods or services using a credit or debit card without being present at the time of the transaction. These occur in a number of different ways, from online shopping payments to phone orders.

Thanks to the accelerated growth of e-commerce — driven, in part, by the COVID-19 pandemic and subsequent lockdowns — card-not-present transactions have grown in frequency. A 2021 study reports a 23% increase in CNP transactions, meaning that a third of all debit payments in the U.S. are now made with the card not present.

Actual examples of CNP transactions 

CNP transactions are remarkably common these days, with the MasterCard SpendingPulse report showing a 4.4% increase in e-commerce sales in February 2022 compared to the previous year — and an 85.9% increase versus pre-pandemic numbers. Examples of these types of transactions include online orders, phone orders, recurring payments, invoice payments and mail orders.

Online orders

Many businesses have an online presence, so much so that the first touchpoint for a customer is often on a company’s website. In keeping with this, a GE Capital Retail Bank study found that 60% of consumers in the U.S. go online before visiting a physical branch of a shop.

When consumers purchase goods and services online, these transactions are card-not-present transactions, as neither the buyer nor the card is in the physical store. Instead, the customer enters card details using a payment gateway, including their 16-digit card number, the expiration date and the three-digit CVC/CVV code, alongside details like their name, address and phone number.

Examples of online orders include:

• Buying an item from an online shopping platform like Amazon, Etsy or eBay.
• Paying for services like entertainment, catering or cleaning through a company’s website.

Phone orders

While not as common as online orders, many people still make purchases by phone, which is another kind of CNP transaction. Here, the customer provides their card details — the same details as for an online transaction — verbally to a salesperson, or enters card data using a keypad. The transaction is made by the seller once the information has been received.

Examples of when you might make a phone order include:

• Buying a product when talking to a salesperson over the phone.
• Paying your credit card or utility bill after talking to a customer service representative.
• Ordering food for delivery by phone.

Recurring payments

Recurring payments are payments that are set up to be processed automatically at agreed-upon intervals. These often form part of a subscription to certain goods and services, and while the card may sometimes be present for the initial payment, subsequent payments are made as CNP transactions. The customer’s card and billing information is safely and securely stored with the business for ongoing transaction processing.

Examples of recurring payments you may make include:

• Paying mobile phone or utility bills.
• Maintaining magazine subscriptions.

Invoices

Businesses sometimes issue invoices to customers after fulfilling the purchase of goods or services. The customer can pay these invoices from their debit or credit card using a bank transfer or a digital wallet.

Examples of when you might pay an invoice using a CNP transaction include:

• When purchasing services from a self-employed service provider like a builder or manufacturer.
• When purchasing a professional service provided by a legal or accountancy firm.

Mail orders

Finally, you might receive payment from a mail order — although this is far less common than the above methods. An additional disadvantage for mail order payments is that there are fewer opportunities for verification, such as an online payment gateway or confirming details by phone.

Often, mail orders are accompanied by the customer’s signature, which can be used to verify their identity. CVV/CVC checks often cannot take place for mail orders as these numbers should never be recorded; therefore you may have to confirm this by phone or another method of contact.

Examples of mail-order purchases include:

• Health and wellness product orders from pharmacy or health insurance catalogs.
• Clothing, jewelry, technologies or furniture ordered from a shopping catalog.

Cost of remote credit card processing

Processing CNP transactions is generally more expensive than processing card-present transactions, largely because of the increased risk of fraudulent transactions. The risk is higher because validating the cardholder’s identity is more difficult when they aren’t physically present. Card issuers and payment processors often charge higher fees for CNP transactions to counteract these elevated risks. These costs are often passed onto the merchant and then on to the customer.

Card processing fees can be broken down into the following:

• Interchange fees: These fees are paid directly to the card issuer for each transaction, and the amount charged can vary depending on the issuer, the type of card or transaction (in person or online, for example), the transaction value and the industry. Businesses within industries considered high risk, such as gambling or financial services, may pay higher interchange fees.
• Credit card processor fees: These fees are charged by the payment or merchant services processor and often include a monthly fee as well as fees per transaction, statement fees and costs for equipment like POS terminals. The business using the payment processor is responsible for covering these fees, but they are often passed on to customers. An example of a payment processor is Square.
• Assessment fees: Assessment fees are paid to the credit card network — such as American Express, Discover, Mastercard or Visa — but they are paid based on a vendor’s total monthly sales rather than per transaction.
• Risk and compliance: These fees are paid to ensure card data is handled in a way that protects cardholder information. For example, some processors charge for assisting with or confirming PCI compliance measures, a security standard protocol with which all businesses that accept credit cards must comply.

To illustrate pricing differences for CNP and non-CNP transactions, we’ve compared U.S. credit card processing fees for some of the biggest credit card processors:

	IN-PERSON FEE	ONLINE FEE	LEARN MORE
Square	2.6% plus $0.10 per transaction	2.9% plus $0.30 per transaction	Square review
Square IN-PERSON FEE 2.6% plus $0.10 per transaction ONLINE FEE 2.9% plus $0.30 per transaction LEARN MORE Square review
Stripe	2.7% plus $0.05 per transaction	2.9% plus $0.30 per transaction	Stripe review
Stripe IN-PERSON FEE 2.7% plus $0.05 per transaction ONLINE FEE 2.9% plus $0.30 per transaction LEARN MORE Stripe review
Helcim	1.94% plus $0.08 per transaction (average)	2.51% plus $0.25 per transaction (average)	Helcim review
Helcim IN-PERSON FEE 1.94% plus $0.08 per transaction (average) ONLINE FEE 2.51% plus $0.25 per transaction (average) LEARN MORE Helcim review
Paysafe	0.3% plus $0.10 per transaction	0.3% plus $0.10 per transaction	Paysafe review
Paysafe IN-PERSON FEE 0.3% plus $0.10 per transaction ONLINE FEE 0.3% plus $0.10 per transaction LEARN MORE Paysafe review

Card not present fraud prevention 

When a merchant can’t scrutinize a payment card for signs of fraud, such as altered numbers or missing holograms, it’s harder to prevent fraudulent transactions. As such, the risk with CNP transactions, like online and phone payments, is higher.

Heightened fraud risk is a significant worry for merchants and card processors, and it should be. Research conducted by Insider Intelligence suggests that $9.5 billion will be lost due to CNP fraud in 2023, an increase of 8.5% from 2022. This amounts to 73% of all losses due to card payment fraud and, according to The Financial Brand, 80% of all fraud in the U.S.

How does CNP fraud work?

If someone uses a payment card that isn’t theirs and that they had no legal right to use to pay for goods or services through one of the CNP methods outlined above, this is CNP fraud. For example, if someone uses a stolen credit card to purchase goods or services online, or if an employee at a business uses a company card to pay for personal transactions by phone, they’ve committed CNP fraud. Fraudsters and cybercriminals often obtain cardholder details through malicious practices like card skimming, spyware or social engineering like phishing.

What is chargeback fraud?

Another type of fraud often involved both in CNP and card-present transactions is chargeback fraud. A chargeback is when a customer successfully disputes a credit card payment on the basis that the charge was not authorized. Consequently, funds are sent back to the customer from the merchant’s account — and a mark and penalty is made against the business.

Chargebacks can be legitimate, but they are also often carried out by fraudsters who dispute a legitimate purchase on a false basis. To counteract this, merchants must prove the transaction was legitimate — an often difficult task. In many CNP fraud cases, the merchant is liable for any costs and subject to a chargeback penalty — making it important for businesses to employ security and anti-fraud measures.

Ways to prevent fraud with CNP transactions

To reduce the likelihood of CNP fraud, it’s advisable to take the following measures:

• Ensure PCI compliance: PCI compliance is a standard security protocol for businesses that handle credit and debit card data. Ensure that online software and hosting platforms for e-commerce stores are PCI compliant.
• Ask for CSC codes: These three-digit codes appear on the back of major credit and debit cards, such as Visa credit cards. Asking for this code when processing a card-not-present transaction helps to ensure the customer has the card in hand and not just the numbers to use the card.
• Security: Due to the risk of fraud, particularly to merchants who must accept liability, it’s always worth investing in high-level security protocols. This includes multi-factor authentication, 3-D Secure authentication and biometrics to ensure the customer’s identity is verified before they can log into online accounts where purchases are often made.
• Information gathering and verification: An address verification system can be used to verify the cardholder’s identity by cross-referencing the provided billing address with the address recorded by the credit card issuer.
• Customer education: As a merchant, consider informing your customers about identity and CNP fraud and the steps they can take to safeguard against it.
• Policy enactment: By enacting clear policies for returns and back orders, and posting them clearly on your merchant website, you can help protect yourself against fraudulent chargebacks posed by unhappy customers who don’t know how to rectify their problem in a non-fraudulent way.

Featured credit card processing offers

Stax

Learn More

Via Stax’s website

Monthly fee

$99

Swiped transaction fee

7¢ to 10¢ + interchange rate

Merchant One

Learn More

Via Merchant One’s website

Monthly fee

$13.95

Swiped transaction fee

0.29% to 1.55% per transaction

Payment Depot

Learn More

Via Payment Depot’s webiste

Free Trial

No

Offers

$0 Setup & No Cancellation Fees

Pricing

Customized Interchange+ Pricing – Rates as low as 0.2% – 1.95%

Clover

Learn More

Via Clover’s website

Monthly fee

$14.95

Swiped transaction fee

2.6% + 10¢

Frequently asked questions (FAQs)