Card-not-present fraud

Definition

Card-not-present fraud refers to fraudulent transactions that occur when a credit or debit card is used without the physical card being present at the point of sale. This type of fraud is common in online shopping and phone orders, where merchants rely on the cardholder's information instead of the physical card for payment. Since the physical card isn't required, it can be easier for criminals to exploit stolen card information.

5 Must Know Facts For Your Next Test

1. Card-not-present fraud has been on the rise due to the increase in online shopping and e-commerce, making it a significant concern for retailers.
2. The lack of physical verification, such as a signature or PIN, increases the risk for merchants when dealing with card-not-present transactions.
3. Fraudsters often use stolen credit card information obtained from data breaches or phishing scams to carry out card-not-present fraud.
4. Merchants can implement various security measures, such as Address Verification System (AVS) and Card Security Code (CSC), to help mitigate the risks associated with card-not-present transactions.
5. To recover losses from card-not-present fraud, businesses may face increased chargebacks, which can harm their reputation and lead to financial penalties from payment processors.

Review Questions

• How does card-not-present fraud impact online retailers differently than traditional brick-and-mortar stores?
  • Card-not-present fraud primarily affects online retailers because these transactions do not require the physical presence of the card. Unlike traditional stores where customers present their cards and provide verification through signatures or PINs, online merchants must rely solely on the information provided during checkout. This lack of physical verification makes it easier for fraudsters to exploit stolen card details, increasing the risk for online businesses compared to those with in-person transactions.
• What strategies can businesses implement to reduce the risk of card-not-present fraud during transactions?
  • To reduce the risk of card-not-present fraud, businesses can implement several strategies. These include using Address Verification System (AVS) to match billing addresses with cardholder information, requiring Card Security Codes (CSC) during transactions, and adopting advanced fraud detection technologies that analyze transaction patterns. Additionally, offering customer education on recognizing phishing attempts and encouraging secure practices can further help mitigate these risks.
• Evaluate how advancements in technology may change the landscape of card-not-present fraud in the coming years.
  • As technology evolves, advancements such as biometric authentication, machine learning algorithms, and tokenization are expected to significantly change the landscape of card-not-present fraud. Biometric methods like fingerprint or facial recognition could provide additional layers of security during online transactions. Machine learning can analyze transaction data in real-time to detect unusual patterns indicative of fraud. Tokenization replaces sensitive card information with unique identifiers, minimizing exposure during transactions. Collectively, these innovations have the potential to reduce incidents of fraud and enhance payment security in an increasingly digital economy.

Related terms

Chargeback: A chargeback is a reversal of a transaction, initiated by the bank or credit card company, often as a result of fraud or customer disputes.

Payment gateway: A payment gateway is a technology that processes credit card payments for e-commerce sites and ensures secure transactions between customers and merchants.

Identity theft: Identity theft is the unauthorized use of someone else's personal information, often leading to financial fraud or other forms of deception.