Beware the Invisible Threat: Understanding and Combating Card-Not-Present Fraud

Beware the Invisible Threat: Understanding and Combating Card-Not-Present Fraud

July 06, 2023

In today's digital age, credit card fraud has become a growing concern for individuals and financial institutions alike. Credit cards have become an essential tool for managing finances and making purchases, but this convenience also attracts fraudsters seeking to exploit unsuspecting individuals. In this article, we will delve into the world of card-not-present fraud, providing valuable insights and practical tips to help you protect yourself from becoming a victim.

Understanding Credit Card Fraud

Credit card fraud refers to the unauthorized or deceptive transactions carried out using someone else's credit card information. Fraudsters employ various methods to obtain credit card information, such as phishing emails, data breaches, or card skimming. Once they acquire this sensitive information, they can use it to make purchases, withdraw cash, or even open fraudulent accounts in the victim's name.

Card-Present Fraud

Card-present fraud involves the unauthorized use of a credit or debit card in a face-to-face setting, such as at a grocery store checkout line. This type of fraud may involve the use of the actual stolen card or a fraudulent duplicated card created using stolen card details and magnetic stripe information. In these fraud situations, the issuer of the card is responsible for restitution in cases of card-present fraud.

Card-Not-Present Fraud (CNP Fraud)

Card-not-present fraud occurs when a cardholder does not physically present the credit card to a merchant during a transaction. There are a wide variety of CNP transactions types including online purchases, phone purchases, digital wallet payments, card-on-file payments, and recurring payments to list a few. In the event of CNP fraud, the merchant who receives the money from the fraudulent transaction is liable for restitution to the cardholder, resulting in a chargeback.

Insurance Coverage

When CNP fraud occurs, it is crucial to understand the implications and liability involved for merchants. Unlike card-present fraud, where the liability generally falls on the issuer, card-not-present fraud places the responsibility on the merchant who accepts the payment. This means that if a customer falls victim to card-not-present fraud, the merchant may be held liable for restitution.

Unfortunately, chargebacks are commonly excluded from both crime and cyber insurance policies. Before you become a victim of credit card fraud, it is important to understand your coverage provided by your insurance policy, specifically reviewing the policy for exclusions. FNIC can assist you in evaluating your current policy and review potential proactive measures for chargebacks.

Proactive Steps

As a merchant, there are several steps you can take to protect your business and your customers from card-not-present fraud. Here are some effective preventive measures:

  • Implement Strong Security Measures: Utilize robust security protocols for your online platforms. Regularly update your systems and software to ensure they are equipped with the latest security patches.
  • Use Address Verification Service (AVS): AVS can help verify the cardholder's address by comparing it with the billing address on file. Implement AVS as an additional layer of verification during transactions to reduce the risk of fraudulent activity.
  • Educate Your Staff: Train your employees to recognize common signs of card-not-present fraud, such as unusual purchase patterns, mismatched information, or suspicious customer behavior. Provide them with guidelines on how to handle such situations and escalate them to the appropriate authorities.
  • Foster Customer Communication: Encourage open communication with your customers regarding their transactions. Implement clear channels for customers to report any suspicious activities or unauthorized charges promptly. Respond promptly to customer concerns and take appropriate action to investigate and resolve potential fraud cases.

Card-not-present fraud poses a significant threat to merchants and their customers in the digital landscape. By understanding the nature of this fraud and implementing preventive measures, you can protect your business and maintain trust with your customers. At FNIC, we are dedicated to supporting businesses in mitigating risks associated with credit card fraud.