Accepting Mobile Payments? How to Know When It’s Card-Present vs Card-Not-Present (and Why That Matters)

There’s been a huge uptick in mobile payments as merchants increasingly provide their customers with low-contact and convenient payment options. In fact, the global mobile payment market is predicted to grow 30% annually from 2020 to 2027. 
 
Given this huge move toward mobile shopping and payments, merchants need to understand an important implication: Certain types of mobile payments present a potentially very costly concern: card-not-present (CNP) fraud. 

3 Reasons for the Growth of Mobile CNP Payments

The growth of mobile payments matters to merchants because of a liability shift that occurs if they’re considered CNP transactions. While card issuers are often liable for card-present fraud, merchants are typically liable for covering the cost of any CNP fraud, including the processing fees.
 
And interestingly, even if a purchase is made in person, it’s not always considered card-present. That’s because of the acceleration of merchants providing more omnichannel shopping experiences that incorporate more digital, mobile device-based payment options. 

Here are three payment trends—spurred in part by the pandemic—that could be leading merchants to accept more CNP mobile transactions:

• Click and collect. These are purchases often made via a mobile browser in which the goods are picked up in person.
• Mobile in-app. These are purchases made within a mobile app, often allowing customers to bypass the usual checkout line to pick up their order.
• QR codes. Customers at the business location use their smartphone to scan a unique code that directs them to a website where they can place their order.

In all of these situations, even though a customer performs a portion, if not all, of their purchase at a physical location, it’s likely categorized as a CNP purchase because the payment happened through an e-commerce channel.

Why CP vs. CNP matters

Because merchants are typically liable for CNP transactions reported as fraud, they must do all in their power to prevent CNP fraud so it doesn’t become a huge cost to their bottom line. And unfortunately, CNP fraud losses are growing: Aite Group reports that they are projected to total $7.9 billion in 2021, up from an estimated $7.2 billion in 2020.

Understanding When a Mobile Payment is Card-Present vs. Card-Not-Present

So, when do issuers consider mobile payments card-present vs. CNP? Here’s a quick overview: 

• Card-present mobile payment transactions: Card-present mobile transactions include any time a customer is at a physical location and their mobile wallet needs to be “read” by the merchant’s NFC-enabled payment terminal. Most digital wallets traditionally work this way. So, if the customer makes their purchase in-store using a mobile wallet at the card reader, that’s most likely a card-present transaction.
• Card-not-present mobile payment transactions: Anytime a mobile payment does not require a card reader, it’s likely a card-not-present transaction. This could be a customer paying for their coffee using the retailer’s mobile app or buying a new shirt online that they’ll pick up at the store later. Whether they completed the purchase from home or while in the store itself, these are likely CNP transactions. 

Preventing CNP Fraud and Chargebacks

Merchants who mostly processed card-present transactions at their location may now in fact be processing many card-not-present transactions without even realizing it.
 
Given the heightened risks and fraud liability costs merchants face due to accepting more CNP payments, it’s a good time to evaluate your practices and processes—and take steps to reduce and prevent CNP fraud and chargebacks. This includes leveraging collaborative tools and solutions that can help minimize chargebacks or by implementing a CNP fraud prevention framework. 

The shift to omnichannel

While offering customers more omnichannel experiences presents a plethora of opportunity—it also means merchants that have traditionally operated mostly in brick-and-mortar environments need to also start thinking like e-commerce specialists. And this includes evaluating and mitigating against the risks and fraud that can come with CNP transactions.
 
Understanding the implications that come with accepting CNP payments—and working to prevent CNP fraud and chargebacks—is a very important first step.