What Is Card Not Present Fraud?

Card Not Present (CNP) fraud occurs when a bad actor makes unauthorized purchases using stolen credit card information. The potential for this form of fraud exists any time transactions are facilitated without having to present a physical card to a merchant in person.

CNP Fraud: A Growing Problem

CNP fraud has risen sharply during the ecommerce boom triggered by the COVID-19 pandemic. It’s estimated that CNP fraud will cost retailers $130 billion during the five-year between 2018 and 2023. To mitigate this threat, financial services organizations, credit card companies, and others are layering in new defenses against CNP fraud, but with varying success.

For instance, confirming CNP transactions with the customer via text message has been a growing trend, especially when the amount being transacted is unusually high. In practice, however, this can create friction that can lead impatient consumers to abandon the purchase, never to return.

As it stands now, as much as 88% of online shopping orders are abandoned. With no signs of slowing down, knowing how CNP fraud works is vital to understanding how to stop it without creating friction for legitimate transactions.

How CNP Fraud Works

CNP fraud often occurs through online phishing scams, where criminals create malicious clones of real websites that steal customer information. These phishing campaigns are usually spread via email, but they can also spread through text messages, fraudulent social media pages and rogue mobile apps.

Less commonly, dishonest employees can carry out CNP fraud, especially when taking credit card information over the phone. This can also occur at restaurants where dishonest employees hand-copy credit card information before processing your transaction.

But by far the most common way fraudsters obtain stolen credit card information is via Dark Web marketplaces where the card and other personal information is harvested from data breaches.

How to Prevent CNP Fraud

Detecting and preventing CNP fraud is crucial to card issuers and payment processors, who bear the financial burden of bad transactions. To accomplish this, these businesses can:

  • Require billing address (AVS) and CVV verification to detect fraudsters who have incomplete card details
  • Take down phishing sites impersonating your brand to reduce credentials harvesting
  • Implement solutions that leverage the EMV® 3-D Secure (3DS) security protocol

For those unfamiliar with it, 3-D Secure (3DS) is an industry standard protocol that employs risk-based authentication to protect against fraudulent purchases while providing a frictionless shopping experience for legitimate cardholders. But not all 3DS-based solutions are created equal.

Products like Outseer 3-D Secure combine CNP fraud detection and prevention to validate each transaction and minimize your risk of chargeback losses. Unlike older methods of prevention, 3-D secure was designed to be unnoticeable to real customers, creating a secure and friendly online experience for your brand.

Businesses can prevent CNP fraud by doing the following:

  • Implementing 3-D Secure protocols
  • Requiring billing address (AVS) and CVV verification
  • Keeping websites and online tools updated
  • Leveraging firewall rules to limit exposure to risky transactions
  • Taking down phishing sites before they harm your brand

The Outseer Solution

Outseer 3-D Secure is an Access Control Server (ACS) for credit and debit card issuers and processers. With predictive scoring from the Outseer Risk Engine and shared intel from the Outseer Global Data Network, Outseer 3-D Secure transparently evaluates each transaction in real time to prevent 95% of all CNP fraud. Only 5% of transactions ever require step-up intervention.

Not only is that the best performance in the industry, but it also goes unnoticed by legitimate cardholders, who enjoy a fast, friendly, and secure online transaction experience. Organizations that have migrated to our solution also report significant topline improvements, including:

  • More “top-of-wallet” loyalty as customers increasingly use those cards for payments—resulting in revenue increases for banks and card networks
  • Lower cart abandonment rates and fewer interruptions to legitimate sales, both of which contribute to rising revenue
  • Higher transaction approval rates, which make for happier cardholders—and more interchange fees for issuers

Stopping Fraud, Not Transactions

In 2020 alone, Outseer 3-D Secure protected nearly 1.2 billion transactions, saving our customers as much as $1.6(USD) billion in potential fraud loss.

But that’s just for starters. In addition to improving the cardholder experience and protecting issuer revenues. This industry-leading solution reduces the operational costs associated with reviewing transactions and handling inquiries from legitimate customers.

In short: It’s a win-win scenario for everybody but CNP fraudsters.

To see how you can enjoy unmatched CNP fraud detection and prevention with Outseer, schedule a free demo.

Armen Najarian

CMO + Chief Identity Officer

Armen is a 15-year Silicon Valley veteran with deep experience leading the marketing function for fast-growing fraud prevention, predictive analytics, and cybersecurity companies. His most recent leadership roles include CMO positions at Agari and ThreatMetrix, the latter of which he established as the definitive category leader for digital identity solutions.