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

Meredith Galante, Writer

In today’s digital world, if a customer doesn’t have a form of payment in hand, they can still make purchases. How? 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 (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 swiped, tapped or dipped through a reader or if an EMV chip is processed.

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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 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 CNP 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.

Square’s Processing Fees Video

Learn how card-not-present payment processing fees work with Square.

In 2018,CNP transactions made up 54% of all losses to fraud worldwide. Payments experts expect this number to gradually increase with the growth and adoption of e-commerce.

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

Card-not-present 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 a 2020 Lexus Nexus True Cost of Fraud Study, every $1 of fraud costs U.S. retailers and e-commerce merchants $3.36 per transaction. It’s important to take proactive steps to stop credit card fraud - especially with CNP transactions.

According to a 2015 Merchant Risk Council (MRC) Global Fraud Survey, 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 3DS and device fingerprinting (like your iPhone’s home button or Face ID).

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.

  • Utilize Invoices, Invoices are a strong option for customers who don’t feel comfortable disclosing their payment details over the phone.
  • Implement Square’s e-commerce API, which allows you to process payments with Square on your own website.
  • Utilize 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.
  • Manually enter card information using Square Virtual Terminal. This is ideal 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.

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. Square’s card-not-present transaction fee when you manually key in is 3.5% + 15¢.

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 zip code. The optional note field is great for leaving a personal thank you or to detail items.
  5. Click Charge.

Process a card-not-present transaction with manual entry

Here are the steps to process a CNP transaction in the Square App:

Open the Square app and follow the steps below. The manual card entry fee is 3.5%+15¢.

  1. Open the Square app and add items to the sale
  2. Tap Charge.
  3. Tap Manual Card Entry.
  4. Enter the card number, expiration date, security, and the customer’s billing zip code.
  5. Tap Charge.

Process a card-not-present with Square Online Checkout, Square Online, eCommerce API or Invoices

When a customer makes a purchase through other card-not-present transaction methods such as Square Online, Square Online Checkout, eCommerce API or pays an invoice online, the fee is 2.9% + 30¢.

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.