The Rise and Potential Fall of Fraudulent Card Not Present (CNP) Transactions: Part 1

By Dr. Manfred Mueller and Louis Modell

Credit card fraud is as old as credit cards themselves. Since the introduction of the first plastic Diners Club card in the early 1950s, things have evolved rapidly.

Credit card fraud is a wide-ranging term for theft and fraud committed using or involving a payment card, such as a credit or debit card, as a fraudulent source of funds in a transaction. The purpose may be to obtain goods without paying, or to obtain unauthorized funds from an account. For a broad set of consumers and merchants, they correlate the rise in credit card fraud online with identity theft. In reality, identity theft is one of the oldest scams in the book. Identity theft simply offers fraudsters another way to commit crimes and to hide them from detection.

Card Not Present (CNP)
The Internet and mail post are the major routes for fraud against merchants who sell and ship products and severely affect legitimate mail-order and web merchants. If the card is not physically present (referred to as card not present or CNP) the merchant must rely on the holder —  or someone purporting to be — to present the information indirectly, whether by mail, telephone, or over the web. While there are safeguards in place, it is still more risky than presenting in person, and card issuers tend to charge a greater transaction rate for CNP because of the greater risk.

How Has the Internet Changed the Rules?
Thanks to the Internet, fraud scams are more efficient. The fraudster doesn’t have to travel to physical stores, or potential marks, to test or use stolen credit cards. They are, in effect, invisible criminals, masking themselves by faking the data points they send and making it easier for them to abuse banks and businesses. On the Internet, there is no live communication with a consumer. If the data looks suspicious, you have to either reject the order outright, accept it with the risk of fraud, or have someone investigate the order and try to get back in touch with the consumer — all very costly. At the same time, consumers doing business online expect fast turnarounds on their orders. So how can a merchant ever expect to win?

The Rise and Potential Fall of Fraudulent Card Not Present (CNP) Transactions: Part 2 is now live!