Card-Not-Present Transactions Explained
A card-not-present transaction occurs when a customer’s physical credit or debit card is not electronically read by a payment terminal at the time of purchase.
These transactions commonly include ecommerce payments, electronic invoices, virtual terminal payments, recurring billing and payments accepted over the phone.
What Is a Card-Not-Present Transaction?
A card-not-present transaction is a payment where the merchant does not electronically read the customer’s physical card through a chip reader, contactless reader or magnetic-stripe terminal at the time of purchase.
Instead, the payment information is entered into a website, virtual terminal, payment gateway, mobile application, electronic invoice, customer portal or recurring billing system.
A transaction may also be classified as card not present when an employee manually keys a card number into a terminal, even if the customer and card are physically standing at the business.
Card-not-present transactions generally carry more fraud and chargeback risk, which is one reason they often qualify for higher interchange rates.
Plain-English Definition
If the payment system does not electronically read the physical card during the sale, the transaction will usually be treated as card not present.
The customer may be buying online, paying an invoice or giving the card information over the phone.
Examples of Card-Not-Present Transactions
Ecommerce Payments
A customer enters payment information through an online shopping cart, checkout page or website payment form.
Virtual Terminal Payments
An employee manually enters card information into a browser-based virtual terminal.
Payments by Phone
A customer provides card information to an employee over the telephone.
Electronic Invoices
A customer clicks a payment link in an invoice, email or text message and pays remotely.
Recurring Billing
A stored payment credential is used to process scheduled subscription, membership or installment payments.
Integrated Software Payments
A payment is entered through an ERP, accounting system, customer portal or industry-specific software platform.
Card Present vs. Card Not Present
| Feature | Card Present | Card Not Present |
|---|---|---|
| How the card is accepted | Chip, contactless or magnetic stripe is electronically read | Card information is entered or transmitted remotely |
| Common environment | Retail counter, restaurant or in-person service location | Website, phone, invoice, portal or recurring billing system |
| Fraud risk | Generally lower | Generally higher |
| Interchange cost | Often lower when processed correctly | Often higher because of increased risk |
| Common security data | Chip or contactless authentication | AVS, CVV, tokenization and fraud screening |
| Chargeback exposure | Often lower | Often higher |
Manually Keying a Card Is Usually Card Not Present
Manually entering a card number into a terminal does not normally create the same electronic proof as reading the card’s chip or contactless credential.
Even when the customer is physically present, a manually keyed payment may qualify as card not present and cost more.
Why Card-Not-Present Transactions Cost More
Higher Fraud Risk
The merchant cannot physically inspect the card or confirm that the customer possesses it.
Higher Chargeback Risk
Remote transactions may be easier for customers or fraudsters to dispute.
Higher Interchange
Card brands commonly assign higher interchange categories to remote and manually entered payments.
Gateway Costs
Websites, portals and virtual terminals commonly transmit payments through a gateway that charges additional fees.
Security Tools
AVS, CVV verification, tokenization and fraud screening may create additional per-transaction charges.
Qualification Errors
Missing data, late settlement or incorrect transaction coding can push payments into more expensive interchange categories.
How Card-Not-Present Transactions May Appear on a Statement
Card-not-present activity may be identified directly or through interchange descriptions associated with ecommerce, keyed and remote transactions.
General Descriptions
- Card Not Present
- CNP
- Card Absent
- Remote Transaction
- Non-Face-to-Face
Ecommerce Descriptions
- Ecommerce
- Electronic Commerce
- Internet Transaction
- Online Sale
- Secure Electronic Commerce
Entry Method Descriptions
- Keyed
- Manual Entry
- Mail Order
- Telephone Order
- MOTO
How a Higher CNP Rate Affects Processing Costs
Example Card-Not-Present Cost Difference
Assume a merchant processes $500,000 per month in card-not-present sales.
If those transactions cost 0.50 percentage points more than comparable card-present transactions:
Some of this difference may be unavoidable because of the transaction environment. However, preventable downgrades, missing transaction data, processor markup and unnecessary technology fees should still be reviewed.
Information That Can Affect CNP Qualification
Address Verification
Billing address and ZIP-code information may help verify the customer and support proper qualification.
CVV or Security Code
The card security code can provide additional evidence that the customer has access to the physical card.
Correct Transaction Indicator
Ecommerce, recurring, stored credential and telephone-order transactions should be identified correctly.
Timely Settlement
Transactions that are not settled within required timeframes may qualify at more expensive interchange categories.
Level II or Level III Data
Eligible commercial-card transactions may require enhanced transaction data to qualify for lower interchange categories.
Stored Credential Data
Recurring and card-on-file transactions should include the appropriate stored-credential indicators.
The Wrong Gateway Can Increase B2B CNP Costs
Many B2B payments are card not present because they are accepted through electronic invoices, virtual terminals, customer portals and integrated accounting or ERP systems.
If the gateway does not properly collect and transmit enhanced commercial-card data, eligible B2B transactions may fail to qualify for lower interchange categories.
Depending on the merchant’s card mix and volume, this can increase the overall effective processing rate by more than 1%.
Ways Merchants Reduce Card-Not-Present Risk
Address Verification Service
AVS compares the billing address information provided during the transaction with information held by the card issuer.
CVV Verification
The card security code helps verify that the person entering the payment information has access to the card.
Tokenization
Tokenization replaces sensitive card information with a secure token for future transactions.
Fraud Screening
Fraud tools may evaluate transaction behavior, device information, location, velocity and other risk indicators.
Customer Authentication
Additional authentication may help verify the customer during certain online transactions.
Clear Payment Descriptors
A recognizable billing descriptor can reduce customer confusion and unnecessary disputes.
Security Tools Do Not Automatically Guarantee Lower Rates
AVS, CVV and fraud-screening tools can reduce risk and support proper qualification, but the transaction must still be coded, transmitted and settled correctly.
Common Card-Not-Present Processing Problems
Incorrect Transaction Coding
Ecommerce, recurring or stored-credential transactions are transmitted with the wrong indicator.
Missing AVS Data
Billing address or ZIP-code information is not collected or transmitted.
Missing Enhanced Data
Eligible B2B transactions fail to include the data required for lower commercial-card interchange categories.
Late Settlement
Transactions are submitted for settlement outside the required timeframe.
Duplicate Technology Fees
The merchant pays separate gateway, software, tokenization and processor fees for the same payment activity.
Inflated Processor Markup
The processor adds excessive markup to already higher-cost card-not-present transactions.
Unnecessary Manual Entry
Employees key transactions that could have been accepted through a more secure or efficient payment method.
Incorrect Recurring Indicators
Card-on-file and recurring payments are not identified properly.
Unexplained Rate Increases
CNP pricing changes over time without a clear explanation from the processor.
How to Audit Card-Not-Present Transactions
A complete review should examine transaction methods, interchange categories, security data, processor markup and technology costs.
1. Separate CNP Sales Volume
Identify ecommerce, virtual terminal, telephone, invoice and recurring payment volume.
2. Review Interchange Categories
Determine how each card type is qualifying and identify expensive downgrade categories.
3. Verify Transaction Data
Confirm that AVS, CVV, ecommerce, recurring and stored-credential information is transmitted correctly.
4. Review Gateway Capabilities
Determine whether the gateway supports the merchant’s transaction environment and B2B data requirements.
5. Identify Every Related Fee
Review processor, gateway, software, security and authorization charges.
6. Calculate the True Effective Rate
Divide all CNP-related processing costs by the associated sales volume.
Questions to Ask About Card-Not-Present Costs
Request Specific Answers
- Which transactions are classified as card not present?
- What percentage of our volume is CNP?
- How are ecommerce transactions identified?
- Are recurring transactions coded correctly?
- Are stored-credential indicators transmitted?
- Is AVS data being collected and transmitted?
- Are CVV responses being used correctly?
- Are transactions settling on time?
- Does our gateway support Level II or Level III data?
- Which CNP fees belong to the processor?
- Are gateway and authorization fees marked up?
- Which CNP downgrades can be prevented?
“CNP Transactions Just Cost More” Is Not a Complete Answer
Card-not-present transactions often carry higher baseline costs, but that does not mean every charge is unavoidable.
Merchants should still verify interchange qualification, transaction data, gateway capabilities, processor markup and duplicate technology fees.
How to Reduce Card-Not-Present Processing Costs
Transmit Complete Transaction Data
Collect and send the information required for the transaction to qualify correctly.
Use the Correct Transaction Indicators
Properly identify ecommerce, recurring, stored-credential and telephone-order activity.
Settle Transactions Promptly
Avoid unnecessary downgrades caused by delayed settlement.
Evaluate the Gateway
Confirm that the gateway supports the merchant’s B2B, ERP, ecommerce and security requirements.
Negotiate Processor Markup
Review the processor-controlled portion of CNP pricing separately from interchange.
Audit Monthly
Monitor interchange categories, downgrades, technology fees and pricing changes.
Card-Not-Present Transaction FAQ
What is a card-not-present transaction?
It is a transaction where the customer’s physical card is not electronically read through a chip, contactless or magnetic-stripe reader at the time of sale.
What does CNP mean on a merchant statement?
CNP means card not present. It commonly refers to ecommerce, keyed, telephone, invoice and recurring payments.
Are online payments card-not-present transactions?
Yes. Ecommerce payments are generally classified as card not present because the card is not electronically read at a physical terminal.
Is a manually keyed transaction card not present?
Usually, yes. Manually entering a card number does not provide the same electronic card authentication as reading the chip or contactless credential.
Are phone payments card not present?
Yes. Payments accepted over the telephone are commonly classified as card-not-present transactions.
Are recurring payments card not present?
Yes. Recurring and stored-card payments are generally classified as card not present and should include the correct transaction indicators.
Why do card-not-present transactions cost more?
They generally carry higher fraud and chargeback risk, which often results in higher interchange costs.
Can AVS lower card-not-present processing costs?
AVS may support proper transaction qualification and reduce risk, but the transaction must also be coded and settled correctly.
Does CVV verification reduce CNP fraud?
CVV verification can provide evidence that the person entering the payment information has access to the card, although it cannot prevent every fraudulent transaction.
Can the wrong gateway increase CNP fees?
Yes. A gateway that does not transmit required transaction data can cause preventable interchange downgrades, especially for B2B commercial-card payments.
Can card-not-present fees be negotiated?
Interchange is generally established by the card networks, but processor markup, gateway fees, authorization fees and technology charges may be negotiable.
What is a CNP downgrade?
A CNP downgrade occurs when a transaction fails to meet the requirements for a lower interchange category and settles at a more expensive rate.
How do I calculate my CNP effective rate?
Add all processing, gateway, authorization, security and software costs related to CNP transactions, then divide the total by CNP sales volume.
How do I audit card-not-present transactions?
Review transaction methods, interchange categories, qualification data, settlement timing, gateway capabilities and all processor-controlled fees.
Related Merchant Processing Pages
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