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

Meredith Galante, Writer

In today’s digital world, if a customer doesn’t have a form of payment present in hand, they can still make purchases. How? Making a purchase without being physically present is called a card not present transaction. With more and more people purchasing goods from home through e-commerce sites, $3.46 trillion globally in 2019 alone, being able to service card-not-present transactions is important for keeping existing customers and attracting new ones.

What is a card-not-present transaction?

CNP stands for “card not present”. A card not present (CNP) transaction occurs when neither the cardholder nor the credit card is physically present at the time of the transaction. It’s most common for orders that happen remotely — over the phone or by fax, internet or mail.

A transaction is only considered to be “card present” if payment details are captured in person, at the time of the sale. This occurs when cards are physically tapped to a contactless reader or a PIN manually entered into a card reader by the customer. Today’s credit cards also have additional security features called EVM chips, which creates a unique transaction code that cannot be used again.

Examples of card not present transactions

There are a number of CNP transactions that you probably come across everyday. They include:

  • Online purchases, when a customer buys goods on the internet or through an e-commerce transaction.
  • Phone orders, when a customer provides the credit card information over the phone to your business.
  • Recurring payments that are set up to bill automatically.
  • Invoices that are paid online.

How much does it cost to process credit cards remotely?

Just like processing credit cards in person, your business will have to pay to process CNP payments. As a refresher, the three main 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 provider’s mark-up.

Generally, interchange fees are higher for card not present transactions because the chance of fraud and chargebacks is higher without the 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.

Understanding card-not-present fraud and how to prevent it

CNP fraud is a type of credit card scam in which a defrauder uses someone else’s compromised card information to make a remote purchase. 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. According to UK Finance, In 2018, CNP transactions made up over £500 million worth of fraudulent activity in the UK. Payments experts expect this number to gradually increase with the growth and adoption of e-commerce.

The UK Cards Association suggests several ways to protect against CNP fraud — you can read more about how Square implements these suggestions and works to keep businesses safe here. These security services add additional steps to customers’ shopping experience where the Card Verification Value (CVV) and billing address are cross checked before an order is finalised. If this information does not match the information provided by the customer, the order can be blocked.

An address verification system (AVS) is an effective way to verify the address of the person claiming to own the credit card. The system checks the billing address of the credit card provided by the customer with the address on file at the credit card company. This is why most payment processors, including Square, will ask you to verify your customer’s billing address before authorising a CNP charge.

Four easy ways to accept and process CNP cards 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.

  • Utilise Invoices. Invoices are free to send — pay only 2.5% for each invoice paid. Invoices are a strong option for customers who don’t feel comfortable disclosing their payment details over the phone.
  • Use Square Virtual Terminal (learn more below). This is ideal for orders taken remotely or over the phone.
  • Implement Square’s e-commerce API. This allows you to process payments with Square on your own website
  • Utilise Square Online Checkout, which generates a simple online checkout link or button. Just create a link with your item name and a price, and share the link on your existing website, social media channels or in an email. Learn how to get started with Square Online Checkout.

Process a card-not-present transaction with Square Virtual Terminal

Square Virtual Terminal is a product offered by Square that lets you safely process credit cards over the phone. Simply open your Dashboard and turn any computer into a virtual POS system — no card reader or software needed — and for just 2.5% per keyed in payment.

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 Take a Payment.
  4. Enter the credit card details for the transaction. You will need to enter the final order amount along with the customer’s credit card number, expiration date, CVV and billing post code. The optional note field is great for leaving a personal thank you or to detail items.
  5. Click Charge.

By following these CNP transaction tips, you’ll be ready to take payments from your customers no matter where they are. Learn how card-not-present payment processing fees work with Square.

Meredith is a freelancer writer based in New York City. She’s been writing for Square since 2017 where she’s covered everything from the best software for restaurants to use to maximize profit, minimum wage laws across the country, and tips for entrepreneurs to maximize their impact.