What Is a Card-Not-Present (CNP) Transaction and Why Does It Costs More

In today’s digital world, if a customer does not have a physical card present to make a payment, they can still buy goods and services. How? Making a purchase without having the card physically present is called a card-not-present (CNP) transaction. But what is a CNP transaction and what does it mean for your business? Here is what you need to know.

What is a card-not-present transaction?

A CNP transaction occurs when neither the cardholder nor the credit or debit card is physically present during the authorization process. It’s most common for these transactions to happen remotely—over the phone or through online platforms and eCommerce websites.

A transaction is only considered to be “card present” if payment details are captured in person, at the time of the sale.

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CNP transaction examples

Every day, businesses handle a number of CNP transactions. They include:

  • Online purchases, when a customer buys goods on the internet or through an eCommerce transaction
  • Phone orders, when a customer provides the credit card information over the phone to a merchant. 
  • Online invoices that the cardholder pays for through digital platforms.
  • Card on file/recurring payments, when a customer has provided a continuous authorization on a credit card for automatic billing. 

How much does a CNP transaction cost?

Just like processing credit cards in person, your business will have to pay to process CNP payments. As a refresher, the three types of credit card processing fees that make up your rate are interchange fees, assessment fees (charged by card brands like Visa and Mastercard), and your payment processor’s markup.

Interchange fees are generally higher for CNP transactions due to the increased risk of fraud and chargebacks associated with authorization without a credit card present. These higher processing costs are then passed down to the merchant, which is why card-not-present transactions are usually more expensive than card-present transactions.

More than one in 10 Canadians have experienced credit card fraud in the past six months, and unauthorized transactions are the most frequent type of payment fraud.

Understanding CNP fraud and how to prevent it

CNP fraud is a kind of credit card scam where software-based fraudsters use compromised card details for unauthorized payments. Because both the card and cardholder aren’t physically present (and fraudsters often steal complementary information like the CVV and billing address), it can be difficult for merchants to verify the purchaser’s identity.

When CNP fraud occurs, the merchant generally bears the financial burden. And the costs can be staggering. Taking proactive steps to prevent and protect against credit card fraud is vital, especially when dealing with an authorization without a credit card present. Fraud prevention strategies are critical if a business wants to protect financial integrity while pursuing online sales and eCommerce growth.

According to the Merchant Risk Council (MRC)
, the best methods for authenticating CNP transactions include using the Address Verification System (AVS) to verify billing addresses; asking for a card verification number (CVN), like the CVC2 and CVV2, for every purchase; enabling 3D Secure, like Mastercard SecureCode or Verified by Visa, on your website; and ensuring compliance with PCI (Payment Card Industry) standards.

The AVS is a system that cross-checks the billing address the customer provides against the information kept by the credit card issuer. This is why most payment processors, including Square, will ask you to verify your customer’s billing address before authorizing a CNP charge.

The CVN is the three or four digits on the back of the card. As for 3D Secure, it is an authentication protocol that provides additional security for online purchases.

Finally, PCI compliance is essential for securing both card present and card-not-present transactions. As a merchant, you are responsible for applying these payment security standards across your point-of-sale (POS) systems. One of the benefits of using Square is that we take care of PCI compliance for your business.

To learn more about CNP fraud detection best practices, check out this checklist from the Canadian Federation of Independent Business.

Accepting and processing CNP transactions with Square

With Square, there’s no need to sign up for a separate card-not-present merchant account to process online payments. Here are some of the affordable ways to process CNP transactions with Square.

1. Square Invoices

Square Invoices are free to send — pay only 2.8% + 30 cents for each invoice paid. Invoices are a strong option for customers who don’t feel comfortable disclosing their payment details over the phone.

2. Square Virtual Terminal

With Square Virtual Terminal (learn more below), you can provide secure payment options to safeguard customers’ information in CNP transactions. This is ideal for remote or phone orders. Transactions processed through Virtual Terminal are processed at a rate of 3.3% + 15¢ per typed-in transaction or payment link.

3. Square’s eCommerce API or Square Online

Implement Square’s eCommerce API, which allows you to process payments with Square on your own website. Or build a free online store with Square Online, which helps you seamlessly – and safely – accept and manage orders. A fee of 2.8% + 30¢ is applied to CNP transactions.

Process a CNP transaction with Square Virtual Terminal

Square Virtual Terminal is a free product offered by Square that lets you safely process credit cards over the phone, by fax, or by mail. Simply open your Dashboard and turn any computer into a virtual POS system — no card reader or software needed.

Here are the steps to process a CNP transaction on Virtual Terminal:

  1. Sign up for your free Square account. 
  2. On your Dashboard screen in the left side panel, click on Virtual Terminal.
  3. Click on Take a Payment
  4. Enter the credit card details required for the transaction. Completing all required fields helps protect transactions and authorize payments quickly. You will need to enter the final order amount along with the customer’s credit card number, expiration date, CVV, and billing postal code. The optional note field is great for leaving a personal thank you or to detail items.
  5. Click on Charge