Card-Not-Present Chargebacks - Merchants Guide

Card-not-present chargebacks hurt U.S. businesses to the tune of tens of billions of dollars per year. Click to learn what can be done to address them.
by Ronen Shnidman
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Published: October 2, 2022
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Card-Not-Present Chargebacks - Justt

eCommerce accounted for nearly 15 percent of all retail sales in the second quarter of 2022, indicating considerable expansion over previous years. All of these sales are considered card-not-present, or CNP, transactions. Unfortunately, CNP and the chargeback process for purchases made using CNP are hurting the profit margins of eCommerce businesses across every vertical. Card-not-present chargeback fraud will remain an expensive problem, with it costing U.S. based businesses alone tens of billions of dollars per year.

What is a card-not-present transaction?

Card-not-present transactions occur when the seller does not physically receive a tangible credit or debit card at any point throughout the transaction. Here, the sellers do not interact directly with the cardholder as they do during a transaction at a traditional point-of-sale.

CNP transactions can take place online or as mail order or telephone order, or MOTO, transactions. MOTO refers to the systems businesses use to accommodate credit card transactions remotely. Despite these transaction options, the overwhelming majority of purchases for CNP over the past two decades were completed via the internet.

What is a card-not-present chargeback?

When a financial institution carries out a payment reversal in response to a card-not-present transaction, it is referred to as a card-not-present chargeback. A merchant with deceptive or improper business practices can cause CNP chargebacks. It can also occur if cardholders are victims of identity theft or exploitation.

Chargebacks are designed to serve as a chance to right things for cardholders who dishonest businesses or criminals have wronged. They’re intended to only be used when a client and a merchant cannot resolve an issue amongst themselves. For instance, if a thief performs a transaction using stolen information from a credit card, the cardholder may submit a chargeback request to receive their money back.

As credit card companies began introducing EMV chips to credit cards across the globe, fraud with physical cards became significantly more difficult. Understanding this new security measure, identity thieves began moving from card-present environments to card-not-present transactions. In addition to the introduction of EMV chips to credit cards, we’ve also seen a 68% increase in data compromises throughout 2020. These data compromises further increase the amount of CNP fraud using compromised credit card information.

Are CNP chargebacks different from card-present chargebacks?

Card-present and card-not-present are significantly different due to the security measures within physical cards. With features like EMV along with the merchant's ability to ask for customer ID confirming card ownership, CP transactions offer significantly higher security for both the merchant and the customer. On top of these security features and capabilities for card-present, fraudulent CNP transactions are easier to commit at scale using stolen credit card data. In fact, experts believe that up to 80 percent of credit cards are compromised.

Processing fees for card-present purchases are significantly lower than those for CNP or card-not-present transactions. Merchant accounts consider CP transactions to have fewer vulnerabilities and chargebacks than CNP transactions since they tend to have greater security measures.

What can be done to reduce CNP chargebacks?

Is it possible to stop or prevent some card-not-present chargebacks? Yes, and there are measures one can take to reduce the likelihood of receiving an incorrect payment or making an error that would result in a chargeback from a CNP transaction. However, to minimize losses from CNP chargebacks, merchants need to start before a transaction takes place. Here are five ways merchants can reduce CNP chargebacks:

Clearly state billing descriptors

Buyers may submit chargeback requests if they do not identify the company name on the billing statement. So, make sure your billing descriptors are accurate and easy to understand.

Utilize chargeback alerts

Chargeback alerts allow businesses to offer reimbursements and terminate the client complaint before a chargeback gets lodged by informing them of an anticipated chargeback.

Enhance customer service

Pay close attention to the needs of the consumer. Make it simple to find contact details. Quickly return phone calls and emails. Social media monitoring is also important. At every stage of the process, engage the customers and keep them informed. The reason for many chargebacks is a delay in delivery times causing the purchaser to think they will not receive their order. So, notify customers of any delays in shipping and keep track of all orders to the point of the customer receiving the product.

Card security codes and address verification service

Always request card security codes. The CVV code on the card is the only place the cardholder should display their security code. So, if the purchaser cannot provide the CVV code, it’s likely they are not in possession of the card. Moreover, an automated technology called address verification service checks the billing location provided at the time of purchase versus the location on record with the issuing bank.

Obtain Third-Party Assistance

The chargeback process is governed by complex and ever-changing rules. Just staying up to date on standards could be a full-time job. You can use third parties like Justt to help you better understand and monitor your chargebacks as well as reduce the amount of CNP chargebacks you receive and win more of them in representment.

Final Thoughts

Justt has developed a cutting-edge, comprehensive solution to address chargebacks that combines machine learning technology and advanced industry expertise. It offers a risk-free chargeback solution by only charging you when Justt recovers funds by successfully resolving your chargebacks.

Benefit from Justt's tailored solutions, cutting-edge AI, and industry-leading chargeback success rates.

Contact Justt today
Written by
Ronen Shnidman
Ex-journalist and major fan of fintech and OSINT, I write regularly for leading industry outlets in finance and fraud prevention. Outlets I contribute to include Payments Dive, Finextra, and Merchant Fraud Journal, and I have been cited by
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