Table of contents
In today’s digital world, if a customer doesn’t have a form of payment in hand, they can still make purchases. Making a purchase without being physically present is called a card-not-present (CNP) transaction.
What is a card-not-present transaction?
A card-not-present transaction occurs when neither the cardholder nor the credit card is physically present at the time of the transaction. It’s most common for remote orders — over the phone or by fax, internet, mail, or when using credit card authorization forms.
A transaction is only considered card present if payment details are captured in person at the time of the sale. This occurs when cards are physically swiped, tapped, or dipped through a reader or if an EMV chip is processed.
Examples of card-not-present transactions
There are a number of CNP transactions that you probably come across every day:
- Online purchases: When a customer buys goods online or through an eCommerce transaction.
- Phone orders: When a customer provides the credit card information over the phone.
- Mail orders: When a customer makes a purchase through the mail by filling in their billing details via an order form.
- Recurring payments: Payments set up for automatic billing
- Invoices: Online payments
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 card-not-present payments. As a refresher, the types of credit card processing fees that make up your rate are interchange fees, assessment fees (charged by card brands like Visa and Mastercard), risk and PCI compliance, as well as your payment provider’s markup.
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.
In 2024, CNP transactions made up 73% of all credit card payment fraud in the U.S. alone, up from 57% in 2019. With the growth and adoption of eCommerce, payments experts expect this number to gradually increase.
Understanding card-not-present fraud and how to prevent it
Card-not-present fraud is a 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. With CNP transactions, it’s important to take proactive steps to stop credit card fraud.
According to a 2017 US Payments Forum, the two best, most commonly used methods for authenticating online transactions are card verification numbers (CVN) — the three or four digits on the back of the card — and negative lists, also known as blacklists.
The address verification system (AVS) is also 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 authorizing a CNP charge.
The MRC report indicates up-and-coming tools to authenticate payments will be 3D Secure (3DS) and device fingerprinting (like your iPhone’s home button or Face ID). 3DS is an authentication method that provides an additional layer of authentication for credit card transactions, protecting against fraudulent actors.
Other ways to prevent card-not-present fraud:
- Consider other transaction options like ACH payments, invoices, and payment links. These transaction options have lower fees and provide more convenient and secure ways for your customers to pay for services.
- Build contracts into your purchase process that outline binding agreements and obligations. These contracts allow all parties to have more visibility into the process which can help limit financial disputes.
- Use a buyer acknowledgment form when taking payments. Buyer acknowledgment forms, also known as credit card authorization forms, give businesses leverage during chargeback disputes because they feature the cardholder’s written permission to authorize the charge.
Five 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:
- Utilize invoices. Square Invoices are a strong option for customers who don’t feel comfortable disclosing their payment details over the phone. It can also help you keep your projects and clients organized and set up flexible payment installments.
- Utilize Square Online Checkout. This is a simple online checkout link or button. Just create a link with your item name and price, and share the link on your existing website, social media channels, or in an email.
- Save a customer’s card on file. You can save a customer’s card information with their approval for quick and easy checkout. This is ideal for recurring customers.
- Manually enter card information using Square Virtual Terminal. This is perfect for orders taken remotely or over the phone. You can manually enter card information on your Square app or use Square Virtual Terminal on your computer.
- Implement an eCommerce API. Square Commerce APIs allow you to build custom apps and integrations for processing online orders on your website.
Process a card-not-present 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. The Square card-not-present transaction fee when you manually key in a credit card number is 3.5% + 15 cents.
Here are the steps to process a CNP transaction on Square Virtual Terminal:
- Sign up for your free Square account.
- On your Dashboard screen in the left-side panel, click on Virtual Terminal.
- Click Take a Payment.
- Enter the credit card details for the transaction. Then, enter the final order amount along with the customer’s credit card number, expiration date, CVV, and billing zip code. The optional note field is great for leaving a personal thank-you or item details.
- Click Charge.
Process a card-not-present transaction with manual entry
Here are the steps to process a CNP transaction in the Square Point of Sale app:
Open the Square Point of Sale app and follow the steps below to minimize the risk of payment disputes when making card-not-present transactions. The manual card entry fee is 3.5% + 15 cents.
- Open the Square Point of Sale app and add items to the sale
- Tap Charge.
- Tap Manual Card Entry.
- Enter the card number, expiration date, security, and the customer’s billing zip code.
- Tap Charge.
Process a card-not-present transaction with Square Online Checkout, Square Online, eCommerce API, or invoices
When a customer makes a purchase through other card-not-present transaction methods like Square Online Checkout, Square Online, or eCommerce API, or pays an invoice online, the fee is 2.9% + 30 cents per transaction. Square Invoices are 3.3% + 30 cents per transaction, and manually entered card payments are 3.5% + 15 cents per transaction.
