Card-Not-Present Fraud

Card-Not-Present Fraud

Table of Contents What Is Card-Not-Present Fraud? Understanding Card-Not-Present Fraud How Card-Not-Present Fraud is Committed Under credit card terms and conditions, the credit card issuer will not hold the cardholder liable for any fraudulent charges, whether through card-present or card-not-present fraud. The theft of credit card data for use in card-not-present fraud most commonly occurs through online phishing or through theft of a business’s customer credit card information by dishonest employees. The theft of credit card data for use in card-not-present fraud most commonly occurs through online phishing or through theft of a business’s customers’ credit card information by dishonest employees. Card-not-present fraud is a type of credit card scam in which the customer does not physically present the card to the merchant during the fraudulent transaction.

Card-not-present fraud is a scam where the scammer attempts to make a fraudulent credit card transaction while not possessing the physical card.

What Is Card-Not-Present Fraud?

Card-not-present fraud is a type of credit card scam in which the customer does not physically present the card to the merchant during the fraudulent transaction. Card-not-present fraud can occur with transactions that are conducted online or over the phone. It is theoretically harder to prevent than card-present fraud because the merchant cannot personally examine the credit card for signs of possible fraud, such as a missing hologram or altered account number.

Card-not-present fraud is a scam where the scammer attempts to make a fraudulent credit card transaction while not possessing the physical card.
Online purchases and those done over-the-phone are prime examples of where just a credit card number is required. The ubiquity of online shopping has contributed to the increase of card-not-present fraud.
To combat this type of fraud, many online merchants now require the CVV number, which is on the reverse side of a physical card to validate you have the card.

Understanding Card-Not-Present Fraud

Credit card payment processors take a number of steps to minimize card-not-present fraud. These include verifying that the address provided by the customer at the time of purchase matches the billing address on file with the credit card company, checking the validity of three-digit CVV security codes, and prohibiting merchants from storing these codes. However, if the criminal has stolen these details, the fraudulent transaction may appear legitimate.

How Card-Not-Present Fraud Is Committed

Card-not-present fraud can occur when a criminal obtains a cardholder’s name, billing address, account number, three-digit security code, and card expiration date. These details can be stolen electronically, without obtaining the physical card. The theft of credit card data for use in card-not-present fraud most commonly occurs through online phishing or through theft of a business’s customers’ credit card information by dishonest employees. It also occurs less commonly through merchant database hacks.

The theft of credit card data for use in card-not-present fraud most commonly occurs through online phishing or through theft of a business’s customer credit card information by dishonest employees.

When card-not-present fraud occurs, the merchant bears the loss. This type of fraud can have a significant impact on the merchant’s bottom line, especially for retail establishments, which tend to have small profit margins. By contrast, in card-present fraud, the credit card issuer usually bears the loss, not the merchant. Under credit card terms and conditions, the credit card issuer will not hold the cardholder liable for any fraudulent charges, whether through card-present or card-not-present fraud.

Sophisticated technology can detect many instances of attempted card-not-present fraud. For example, credit card companies have methods of detecting credit card purchases that are likely fraudulent given the account holder’s typical card usage. However, they cannot easily detect a type of card-not-present fraud called online shoplifting or friendly fraud. In this scenario, the criminal will make a purchase online or by phone, receive the merchandise, then file a dispute with the credit card issuer saying that the merchandise is inferior or that it never arrived. The issuer initiates a chargeback, and the merchant has to refund the dishonest customer.

The continuous rise and spread of online shopping have been cited as contributing factors in the increase of card-not-present fraud.

Related terms:

Bottom Line

The bottom line refers to a company's earnings, profit, net income, or earnings per share (EPS). Learn how companies can improve their bottom line. read more

Card-Not-Present Fraud

Card-not-present fraud is a type of scam that is committed without a physical card being presented to a merchant. read more

Card-Present Fraud

Card-present fraud is a transaction in which the fraudulent party physically presents the counterfeit credit card to the merchant. read more

Chip Card

A chip card is a plastic debit card or credit card that contains an embedded microchip. The chip encrypts information to increase data security. read more

Chip-And-PIN Card

A chip-and-PIN card is a type of credit card in which the cardholder must authorize the transaction by entering their personal identification number (PIN). read more

Credit Card Cloning

Credit card cloning is copying stolen card information using an electronic device and copying it to a new card. read more

Credit Card

Issued by a financial company giving the holder an option to borrow funds, credit cards charge interest and are primarily used for short-term financing.  read more

Online Shoplifting

Online shoplifting is a type of theft involving dishonest chargebacks and piracy targeting online or ecommerce merchants. read more

Phishing

Phishing is a method of identity theft carried out through the creation of a fraudulent website, email, or text appearing to represent a legitimate firm. read more

Skimming

Skimming is when thieves capture credit card information from a cardholder without their knowledge. read more