Introduction
What does a SaaS startup in Bangalore working with European customers and an exporter from Delhi selling goods abroad have in common? They both make use of CNP or Card Not Present transactions. None of these businesses requires a physical card for a transaction.
According to the September 2023 Mastercard Spending Pulse, e-commerce businesses are expected to grow by 6.7% year-over-year, while physical businesses have a predicted growth of only 2.9%. For Indian businesses wanting to expand internationally, this is a positive sign of possible growth.
In this article, we will describe what CNP transactions are, their benefits, challenges, and compliance requirements.
Key pointers:
- A Card-Not-Present (CNP) transaction happens when payment is made using card details instead of the physical card. There is no swiping, tapping, or inserting; payments happen through online platforms or digital checkouts.
- CNP transactions involve sharing card details securely through payment gateways or apps. Since the card is not physically used, customer data is sent digitally, requiring strong systems to complete the process safely and smoothly.
- CNP transactions offer businesses and customers convenience, faster checkouts, and access to global markets.
- CNP transactions face more fraud risks since card details travel online. Security tools like 3D Secure 2.0, CVV checks, AVS, tokenization, and risk scoring help verify transactions, protect customers, and ensure safer digital payments.
What is a CNP (Card Not Present) transaction?
When a payment is made with just card details instead of the physical card, it is termed a CNP or Card Not Present Transaction. There is no swiping, inserting, or tapping of cards to check out.
The rise of online shopping has led to CNP transactions becoming a regular part of life. For it to occur, the card details are provided to the merchant from a remote location. Mastercard/Visa cards, among others, are popular for CNP transactions. They process and secure these transactions internationally. The use of CNP transactions has led to the increased need for better fraud prevention methods for businesses.
How do CNP transactions work across payment gateways and platforms?
Transactions made without a card being present can be classified as a CNP transaction. It consists of transmitting the payment details of a customer through online gateways and platforms in a secure manner. The stepwise process is mentioned below:
Step 1: Customer input
A client has to input their details, such as card number, expiry date, and security code (CVV/CVV2) on a website or a payment link. Since a card reader is absent, it is essential to check the details to ensure that it is correct.
Step 2: Safe sending
When a customer clicks on the "pay" button, they are taken to a payment gateway. Encryption of data is done here, which means that the information is converted into an encrypted code that is safely sent to a payment processor. This is done to safeguard sensitive customer information during transmission over the internet.
Step 3: Authentication layer
For the protection of sensitive details, the majority of transactions these days utilize authentication procedures like 3D Secure. This is done by verifying with an OTP (one-time password) that authenticates the customer and does not allow fraud.
Step 4: Role of banking partners
The payment processor receives the customer's details as a secure code. It requests the customer's bank (the card issuer) and forwards it to the merchant's bank (the card acquirer). Both the customer's bank and the merchant's bank, after verifying whether there are sufficient funds and searching for potential fraud, make a decision collectively to accept or reject the transaction.
Step 5: Transaction completion
Once everything is approved, the process is finished. After getting permission, the money moves from the customer's account to the merchant's account, completing the purchase or payment.
Benefits of CNP transactions for online and remote businesses
CNP transactions offer significant convenience, global reach, and savings. Some benefits are listed below:
Convenience for customers
CNP transactions are perfect for online shopping, subscription services, and remote services. They allow customers to pay anytime, anywhere, which leads to increased customer satisfaction and loyalty.
Access to global markets
They allow businesses to jump through the obstacle of geographical barriers, which widens their customer base and allows for international reach.
Expanded sales opportunities
By offering goods and services to an international audience, businesses increase their chance for higher profits. This is a great benefit for Indian startups and businesses that aim to grow globally.
Flexible payment solutions
CNP transactions support Buy-Now-Pay-Later (BNPL) models and digital wallets, which allows it to cater to a wide range of customers.
Use cases of CNP transactions across industries
CNP transactions allow digital payments to occur easily. They are usually handled by payment processors such as Xflow, Stripe, Ayden, or Verif. Some use cases are mentioned below.
SaaS and subscription services
By storing card details on file, processing recurring payments for SaaS businesses becomes a simple process. It allows customers to have uninterrupted access to the service without having to manually pay for each use.
E-Commerce
E-Commerce includes a wide array of activities, ranging from buying groceries to the latest electronics, all of which require CNP transactions. All customers need to do is type in their information at the quick and secure checkout page, and they will receive their product.
Travel
The ability to conveniently book flights, hotels, or rental cars from your house before even reaching a travel destination relies heavily on CNP transactions. It allows international reservations, with instant confirmations, from afar.
Education
CNP transactions have lent a big hand in making education accessible to a wide group of people. People can pay for online courses, coaching, and certifications remotely and learn new skills from the convenience of their home.
CNP vs. CP (card present) transactions: Key differences in process and risk
CNP (Card Not Present) and CP (Card Present) transactions are different in various ways such as their process and risks. The key differences are mentioned below:
| Key Aspect | Card Present (CP) | Card Not Present (CNP) |
|---|---|---|
| Process & Verification | The card needs to be present at the payment terminal for instant verification via chip, swipe, or contactless method. | The card does not need to be present. The details are manually entered online or over the phone with added security like CVV or multi-factor authentication. |
| Risk & Fraud Exposure | Less vulnerable due to direct card presence and in-person validation, reducing chances of fraud. | Increased risk because of remote transactions and reliance on customer-provided data, increasing fraud potential. |
| Customer Interaction | Transactions are rapid and seamless as the physical card is present and read instantly at checkout. | Payment may take longer due to data entry and additional authentication protocols to ensure security. |
| Compliance & Security | Follows EMV chip card standards with relatively straightforward regulatory requirements. | Demands strict adherence to PCI-DSS standards and additional anti-fraud measures such as 3D Secure protocols. |
| Costs & Chargebacks | Generally incurs lower processing fees and fewer disputes due to stronger verification. | Typically involves higher fees and more chargebacks, reflecting the greater risk and security challenges of remote payments. |
Challenges faced by businesses accepting CNP payments
CNP transactions have their own challenges, some of which are mentioned below:
Fraud
Since there is no physical validation or verification of card details, CNP transactions can be more prone to phishing, data breaches, and unauthorized purchases.
Chargebacks
CNP transactions allow easy refunds and chargebacks, which can cause financial loss and operational issues for businesses. Companies like Chargeback Gurus allow businesses to recover and protect their revenue.
Authentication Failures
Security features such as CVV/CVV2 and 3D Secure are not completely perfect. They might sometimes flag legitimate payments as suspicious, but allow actual fraudulent ones to process.
False declines
If fraud filters are too strict, it can result in legitimate transactions being marked as suspicious. That can lead to frustrated customers, which can result in a much larger problem of lost sales and lost customer loyalty.
Compliance
When sensitive customer data is involved, then dealing with compliance standards like PCI DSS and GDPR is important. In order to maintain compliance, a business might have to shoulder high operational and financial pressure.
High Fees
A business might have decreased profit margins as payment processors often charge high fees for CNP transactions.
Best practices for securing CNP transactions
CNP transactions can be prone to fraud risks. To ensure safe transactions, some fraud prevention tools such as 3D Secure 2.0, CVV, AVS, Risk Scoring, and Tokenization, are mentioned below:
3D Secure 2.0
3D Secure 2.0 involves the authentication of customer identity through OTP-based verification or biometrics. This safeguards sensitive information from fraud and false chargebacks.
Card Verification Value (CVV)
CVV/CVV2 is a three-digit code on the back of any card, such as VISA/Mastercard. It helps in verifying that the card is actually present with the person making a transaction, reducing unauthorized transactions.
Address Verification System (AVS)
This process helps in checking if the billing address provided by the customer matches the address on the card issuer's file. If the information does not match, it probably means that it is an unauthorized transaction.
Tokenization
A Bank Identification Number or BIN is the first six to eight numbers of a payment card, such as Visa or Mastercard. Tokenization is the process of replacing a card's primary account number or BIN with a random but unique token. A good tokenization provider will ensure that even if a transaction is intercepted, the actual account details are secure.
Risk Scoring
This is a modern fraud prevention method. By analyzing a wide range of patterns such as device type, transaction velocity, and geographic location, this tool can identify and block suspicious activity even before it occurs.
Integrating CNP payments into business systems
By integrating CNP payments, businesses can acquire secure and simple transaction processes. Some benefits of integration are mentioned below:
CRM Integration
With Customer Relationship Management integration, your business system can automatically link customer information, generate invoices, and track transactions with ease. Not only does it save time and prevent errors, but it also provides a clear picture to study customer behaviors. This information can then be used to form improved pricing and revenue strategies.
Payment Systems
By including CNP transactions in a business workflow, billing can be optimized. Automated invoicing can lead to payments being tracked well and the transaction history being maintained in a proper format. This enables businesses to easily see financial trends and make payments earlier, thereby increasing cash flow.
Payment Processors
A reliable payment processor provides a secure environment for customers to input their personal details and make payments. By using a secure payment processor, companies can ensure that online payments remain safe. It can also help the business expand and grow.
Compliance and regulatory requirements for CNP transactions
In order to have a secure and compliant CNP transaction, there are some standards that need to be met. Some important rules and standards are mentioned below:
PCI-DSS (Payment Card Industry Data Security Standard)
It sets the base for a secure transaction. It requires a secure network, enables protection of stored and transmitted cardholder data, and uses firewalls, encryption, and security policies to ensure that the payment is done in a safe manner. To ensure audit-preparedness, businesses must undergo self-audits and assessments.
DPR (General Data Protection Regulation)
According to GDPR, sensitive data is personal data. Therefore, businesses have a legal obligation to ensure that all card details are safe. In case of a data breach, authorities have to be informed within 72 hours. In case a business is non-compliant with this, it poses a significant risk for sensitive data.
Strong Customer Authentication (SCA)
This helps in verifying customer identity during transactions. It relies on questions regarding either the customer's knowledge about their private life (Ex, Where they are from?), something they possess (Ex, When their first phone was bought), or their biometrics. It helps in preventing fraud to a great degree.
Emerging trends in CNP transactions
Various emerging trends can help make CNP transactions more secure and user-friendly. Some of them are mentioned below:
AI Fraud Detection
By using AI, payment systems can go through huge amounts of transaction data in a short period, which would allow them to spot anomalies quickly. It would also enable businesses to adapt to the ever-innovating fraud techniques while also reducing manual effort.
Biometric Authentication
Using fingerprints or face recognition software that can identify deepfakes helps in authenticating the identity of the customers, significantly reducing the risk of fraud.
Tokenized Recurring Payments
Tokenization increases the security of transactions. Tokenization allows merchants to make payments securely without having to deal with physical cards. It provides better data protection.
How Xflow helps reduce risk and streamline CNP transaction workflows
Xflow has reduced FX and compliance risks, streamlined workflows, and transparent, cost-efficient, and compliant international transactions for Indian startups, exporters, and businesses.
- Deployment in weeks with powerful APIs
- Personalized and flexible pricing plans per user
- Mid-market FX rates to minimize risks
- Faster next-business-day settlements for quicker fund access
- Integrated security and RBI-compliant processes with fraud monitoring
- Flat 1% transaction fee with no hidden FX markup
- Settlements within one business day for reliability and quicker access to funds
- Support for large single-invoice payments over $10,000
- Free automated e-FIRA certificate for compliance benefits
Book a demo and make your CNP payments more secure and scalable with Xflow!
Frequently asked questions
CNP transactions occur when payments are made without physically swiping, tapping, or inserting a card. Customers share details online or via gateways, which securely transmit data for processing.
Key details include card number, cardholder name, expiry date, CVV/CVV2, and billing details. Sometimes, 3D Secure passwords or OTPs are required for stronger verification.
Since there’s no physical validation, CNPs face fraud, chargebacks, authentication failures, false declines, strict compliance demands, and higher fees, making them more vulnerable and costly than card-present payments.
CNP transactions are convenient for businesses as they offer access to international customers, expand sales opportunities, and support flexible payment options. They increase customer satisfaction and can help Indian businesses grow and increase profits globally.
