Card-Not-Present (CNP) Fraud

Fraudsters use various digital methods to steal credit card details. For example, by:

• Using skimming devices, which can capture credit card information that’s later used for CNP transactions. 
• Buying stolen credit card credentials off of the dark web and similar illegal platforms. 
• Employing phishing and fake emails or websites to trick victims into entering their credit card information.
• Succeeding with data breaches and hacking into business accounts or personal profiles to steal data.

Like any sort of fraud, businesses are required to identify it as soon as possible while preventing it from spreading further. That’s because they are mandated by law to implement security measures and protect their customers from data breaches, identity theft, etc., as well as protect the company from financial losses. So, in this sense, it’s important to find the right balance and not to overburden the customer with unnecessary security checks but to safeguard their transactions and integrate a proper CNP fraud prevention strategy. 

Bad actors make small purchases and use the stolen credit card details to pretend that they have a valid, active account. Through such micro charges, they aim to remain undetected and less suspicious. Even when the platform asks such fraudsters to confirm their identity, they use forged documents or synthetic identities to bypass such verification checks. 

Fraudsters typically target online platforms where items or services can be delivered and provided instantly. They test the site with small purchases. If they remain undetected, they either make bigger purchases or transfer funds to their other account illicitly. To avoid detection further, criminals use PO boxes or untraceable addresses to receive their items. Alternatively, they can resell items they purchased using card-not-present fraud to make a profit. 

Criminals hide their purchasing history and clear their transaction routes by changing the credit card information or closing the account used for fraud altogether. Sometimes, they use more anonymous payment methods, like crypto, to cover their trail. This makes it hard to detect CNP fraud, especially skilled fraudsters. 

You can’t remove it from the picture entirely, but you can minimize the chances of having card-not-present fraud on your platform. The most effective way to achieve this goal is to implement identity verification and address verification measures. 

This is convenient before allowing the person to open an account and add their credit card information:

1. To verify their identity, they’ll typically need to upload a copy of their government-issued ID and complete a quick selfie recording. 
2. To authenticate their address, they’ll be asked to provide Proof of Address (PoA), such as a utility bill. 

This helps stop criminals who use fake ID documents, deepfakes or forged and altered PoA documents to bypass verification measures and commit fraud. 

Card-not-present fraud occurs in transactions where the physical card is not required, often using online e-commerce platforms. In the meantime, card-present (CP) fraud happens during in-person transactions using a physical credit card. Fraudsters can use stolen cards as well. In this case, the detection is easier, as physical signs like damaged cards or mismatched signatures can be red flags exposing the criminal.