What are Card-Not-Present Transactions?
Let’s start with the basics. As the name suggests, a card-not-present transaction is any transaction in which you, as a merchant, never actually see or handle the physical payment card. Unlike a typical brick-and-mortar purchase, you don’t come face-to-face with the cardholder. Card-not-present transactions can include phone or mail-in orders. However, the vast majority of CNP orders in the last two decade have been conducted over the internet. A decade ago, online shopping accounted for around 7% of total retail spending. As of 2020, though, eCommerce represents almost 20% of retail purchases, so there’s tremendous growth underway in this market. Unfortunately, CNP chargebacks are undercutting this growth, costing merchants serious revenue in the process.
What is a Card-Not-Present Chargeback?
Credit card fraud is the act of using fake or stolen credit card information to make unauthorized purchases. It’s been a problem as long as credit cards themselves have existed. However, took on a new dimension with the arrival of eCommerce. The Federal Trade Commission (FTC) reports 4.8 million identity theft and credit card incidents in 2020, resulting in a $4.5 billion total loss. These figures combined represent a 45% increase in the number of fraud cases compared the previous year. When criminals get away with a scheme, they tend to repeat it more and more.
A card-not-present chargeback is a payment reversal conducted by a bank in response to a card-not-present (i.e. online) purchase. This could happen as a result of fraud or merchant abuse.
The chargeback process allows for cardholders to recover funds in the event of fraud or abuse. For example, if a criminal completes a purchase using stolen payment card information, the cardholder could file a chargeback to get their money back. The widespread adoption of eCommerce, curbside pickup, and other card-not-present channels in recent years has been accompanied by a rise in CNP chargebacks. This happened for several reasons: * A higher volume of transactions means more chances for dissatisfied customers. * Fraud detection technologies can’t keep pace with eCommerce growth. * Fraudsters are shifting from card-present settings to a less-protected CNP environment.
Chargebacks were created to be a “last resort” for cardholders victimized by either criminal activity or dishonest merchants. They should be reserved for cases in which a customer and a merchant cannot resolve the situation. And, the dissatisfied cardholder’s first move should ALWAYS be to contact the merchant before disputing a charge. When a cardholder files a card-not-present chargeback against you, the funds from the transaction get automatically pulled from your bank account. You lose the sales revenue, plus any merchandise shipped and cost of overhead expenses like shipping and interchange. You also get hit with a chargeback fee assessed by the bank.