In the vast and dynamic landscape of E-commerce, transactions occur with a mouse click. It’s very difficult for businesses to know who their customers are.
And that’s why CNP (Card-Not-Present) fraud poses a significant threat to online businesses. Online transactions only require customers to enter credit card details. Therefore, stolen credit card information can be used, which forms the basis of CNP fraud.
As technology advances, so are the cunning tactics of fraudsters seeking to exploit illegal access in the digital world. This guide provides useful CNP fraud prevention tips for e-commerce business.
What Is CNP Fraud?
CNP fraud, a type of e-commerce fraud, occurs in transactions when the card is not physically presented to a cashier for verification. In many cases, the fraudster uses stolen credit card information to make purchases. For businesses, these fraudlent purchases can result in costly chargebacks.
CNP fraud happens frequently online, because the card doesn’t have to be presented to a cashier. It’s also common for over-the-phone orders.
How does CNP fraud differ from traditional card-present fraud?
1. How It Works: In card-present fraud transactions, the fraudulent party physically presents the counterfeit card to the merchant. CNP fraud is when a transaction occurs without a physical card, most commonly using a digital payment method.
2. How It’s Prevented: To prevent CP fraud, the cardholder should report promptly, and the issuer should minimize financial losses. The fraud prevention measures involve two-factor authentication, address verification, and other methods to ensure the transaction's legitimacy.
Impact of CNP Fraud on E-commerce Business
CNP fraud leads to substantial financial losses for e-commerce businesses, and its consequences can largely be severe. Further, it can even cause harm to the reputation of your business and lead to the loss of customer trust. The consequences of this fraud can happen in several ways, from facing losses to losing customers.
Financial Loss
One of the significant consequences of CNP fraud in e-commerce businesses is financial loss. When fraudulent transactions occur, the company loses the value of goods or services sold and associated fees.
The business might receive a chargeback, resulting in additional fees and penalties. Chargebacks can prove expensive for small businesses with insufficient resources to fight back effectively.
Reputation Damage
CNP fraud can also tarnish the reputation of an E-commerce business. This can affect customer trust too. Customers who have become victims of this fraud might be reluctant to shop with your e-commerce company again.
Their negative comments and reviews can quickly spread online, damaging your business's reputation. To rebuild trust with your long-term customers can prove difficult and time-consuming.
Significance of Card-Not-Present (CNP) Fraud Prevention
CNP fraud prevention is critical to protect users and businesses from financial losses and other hardships. To prevent this, e-commerce businesses should create a CNP fraud mitigation framework and CNP fraud detection software. It helps in dealing with suspicious transactions and successfully prevents this threat.
1. Verify Card Details
By verifying the card details of your customers, you can prevent CNP fraud to a great extent. Use tools like Address Verification Service (AVS) and Card Verification Value (CVV). This matches the card's billing address and security code with the customer's information. If there is a mismatch, we will decline the transaction or request additional verification.
2. Educate Your Customers
Educating customers about protecting card information and reporting unauthorized charges can prevent CNP fraud. You can provide them with valuable tips for creating strong passwords, using secure HTTPS websites, and avoiding phishing emails. Encourage customers to sign up for alerts and notifications from card issuers and check their statements regularly.
3. Secure Payment Gateways
Make sure to make payments through a secure gateway. Investing in advanced technology keeps customer information safe and proves helpful in the long run. It plays a vital role in securing card-not-present transactions.
4. Capture Customer Information
Collect all the essential information from your customer during the checkout process. Capture customer information like email address, contact number, devices used, billing address, and shipping address. This information is essential for high-value transactions.
Collect card information like name on the card, expiry date, card number, and CVV. Collecting this information helps determine that the customer possesses the card and helps eliminate unnecessary customer disputes.
5. Data Protection Practices
Scammers obtain credit card information from customers before processing CNP payments. It is essential to use the latest data encryption and online security to protect you and your customers. Use basic tools like SSL on payment pages to prevent credit card information from falling into the wrong hands.
6. Ensure Store is PCI-compliant
For e-commerce stores that accept credit card payments, making the store PCI (Payment Card Industry) compliant is essential. PCI Security Standards Council develops and manages the set of PCI standards. These standards ensure the complete security of credit card transactions. Being PCI compliant means your store and business process meet PCI standards.
7. Real-Time Monitoring
With real-time monitoring of your store, you can protect it against fraudulent transactions and suspicious activity. Monitor accounts and transactions for red flags like shipping information, inconsistent billing, and the physical location of your customers. Use specific tools that help track customer IP addresses and send alerts to any address from countries known as a base for fraudsters.
8. Conduct Regular Audits
Conducting regular audits to detect security holes before hackers do is crucial. During the audit process, you should address the following specific questions.
- Does the store adhere to PCI compliance standards?
- Are the necessary certificates of websites up to date & functional?
- Is backup taking place regularly?
- Are the anti-virus and anti-fraud programs current?
- Are admin passwords strong?
- Are inactive plugins removed successfully?
9. Avoid Non-Physical Shipping Address
Fraudsters usually protect their address to avoid detection. They prefer to use a PO box or other anonymous location. Online businesses can prevent this by not shipping online orders to PO boxes and different virtual addresses.
10. Unusual Transaction Behavior
Online shoppers usually follow similar processes as they follow their purchases. The online behavior of fraudsters can be irregular, which makes it easy to identify them if you know what to look for:
- A large number of login attempts from one account
- Make huge purchases
- Several requests to reset the password
- Multiple settings or information changes happening in a user account that too in a single session
- Receive a considerable number of requests for chargebacks
Final Thoughts
E-commerce card-not-present fraud transactions are an essential aspect of online business operations. Businesses can achieve multiple benefits in the competitive online shopping world by preventing this fraud. They can protect their money, gain customer trust, and prepare themselves for long-term success.
