Card-Not-Present Chargeback

December 15, 2021 | 10 min read

Card-not-present chargeback

What is a Card-Not-Present Chargeback? Here’s How to Make Sense of Them

Credit card fraud is the act of using fake or stolen credit card information to make unauthorized purchases. It’s been a problem as long as credit cards themselves have existed. However, took on a new dimension with the arrival of eCommerce.

The Federal Trade Commission (FTC) reports 4.8 million identity theft and credit card incidents in 2020, resulting in a $4.5 billion total loss. These figures combined represent a 45% increase in the number of fraud cases compared the previous year. When criminals get away with a scheme, they tend to repeat it more and more.

In this post, we’ll be looking at card-not-present chargebacks. We’ll examine what they are and why they happen more often than card-present chargebacks. We’ll also offer some info on how you can prevent fraud and fight back against abuse.

What are Card-Not-Present Transactions?

Let’s start with the basics.

As the name suggests, a card-not-present transaction is any transaction in which you, as a merchant, never actually see or handle the physical payment card. Unlike a typical brick-and-mortar purchase, you don’t come face-to-face with the cardholder.

Card-not-present transactions can include phone or mail-in orders. However, the vast majority of CNP orders in the last two decade have been conducted over the internet.

A decade ago, online shopping accounted for around 7% of total retail spending. As of 2020, though, eCommerce represents almost 20% of retail purchases, so there’s tremendous growth underway in this market. Unfortunately, CNP chargebacks are undercutting this growth, costing merchants serious revenue in the process.

What is a Card-Not-Present Chargeback?

Card-not-present chargeback

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A card-not-present chargeback is a payment reversal conducted by a bank in response to a card-not-present (i.e. online) purchase. This could happen as a result of fraud or merchant abuse.

The chargeback process allows for cardholders to recover funds in the event of fraud or abuse. For example, if a criminal completes a purchase using stolen payment card information, the cardholder could file a chargeback to get their money back.

The widespread adoption of eCommerce, curbside pickup, and other card-not-present channels in recent years has been accompanied by a rise in CNP chargebacks. This happened for several reasons:

  • A higher volume of transactions means more chances for dissatisfied customers.
  • Fraud detection technologies can’t keep pace with eCommerce growth.
  • Fraudsters are shifting from card-present settings to a less-protected CNP environment.

Chargebacks were created to be a “last resort” for cardholders victimized by either criminal activity or dishonest merchants. They should be reserved for cases in which a customer and a merchant cannot resolve the situation. And, the dissatisfied cardholder’s first move should ALWAYS be to contact the merchant before disputing a charge.

When a cardholder files a card-not-present chargeback against you, the funds from the transaction get automatically pulled from your bank account. You lose the sales revenue, plus any merchandise shipped and cost of overhead expenses like shipping and interchange. You also get hit with a chargeback fee assessed by the bank.

Why Are CNP Chargebacks Different?

In theory, all retail transactions share the same chargeback protection. As we’ll see, though, the results have been far different for card-not-present merchants.

eCommerce allows consumers to make purchases from anywhere in the world. If an issue arises, returning goods to the store may not be a realistic option. It can also be more difficult for buyers to identify charges on their statements, as they may not be familiar with the corporate name, URL, or business address that appears on their billing statement.

Faced with an unrecognized charge, the cardholder’s first instinct is to call the bank and report the charge as identity theft. If the issuing bank takes the claim at face value, they will file a card-not-present chargeback.

In short, card-not-present purchases have chargeback protection, but as a merchant, you get cut out of the filing process. This makes the system vulnerable to abuse in the form of friendly fraud.

How Cardholders Abuse CNP Chargebacks

Identity theft and criminal credit card fraud are real and growing problems, particularly in the card-not-present space. That said, more and more often the “crooks” filing unwarranted CNP chargebacks are otherwise-legitimate cardholders.

Unfortunately, it’s increasingly common for customers who want instant gratification and easy returns to abuse the process. This is a practice known as “friendly fraud.” There are multiple ways this could happen:

  • The cardholder believes a chargeback and a refund are the same thing.
  • The cardholder may not understand that inquiring about a charge can initiate a dispute.
  • An unrecognized charge might have been made by another member of the household.
  • A vague billing descriptor could keep them from identifying the purchase.
  • You, the merchant, could’ve made an error, such as keying in a number incorrectly.

Learn why chargebacks pose a greater threat to card-not-present merchants (and what you can do to protect your business).


There are different situations that could lead to a card dispute. However, our data suggests that roughly 60% of all card-not-present chargebacks filed by cardholders will be cases of friendly fraud by 2023. Plus, the more common chargebacks become, the more likely cardholders are to abuse them.

Chargeback fraud, or “cyber shoplifting,” occurs when customers deliberately filing illegitimate disputes using fraudulent information.

Unlike an in-store purchase, CNP chargebacks provide very little incentive for the cardholder to actually return the merchandise. A sneaky cardholder could purchase a high-ticket item, then call the bank and say it was never delivered. Unless you can prove the claim is false, the fraudster keeps the money and the goods.

Worst of all, once customers figure out how chargeback fraud works, they tend to repeat the process. Roughly half of cardholders who successfully file a dispute will try it again within 90 days.

Top 10 Tips to Prevent Card-Not-Present Chargebacks

So, that raises the question: is it even possible to prevent CNP chargebacks?

Yes. There are steps you can take to lower your risk of accepting an invalid payment or committing some error that will lead to a CNP chargeback. You’ll need to start taking steps long before the transaction happens, though. We recommend implementing these ten steps that may help prevent your next chargeback:

Make Billing Descriptors Obvious

Make Billing Descriptors Obvious

If your customers can’t recognize your name on their billing statement, they may file chargebacks. Ensure your descriptor is clear at first glance.

Implement Alerts

Implement Alerts

Chargeback alerts notify you of an intended chargeback, giving you the chance to issue refunds that stop the customer dispute before a chargeback is filed.

Up Your Customer Service Game

Up Your Customer Service Game

Be extra responsive to consumers’ needs. Make it easy to find contact information. Answer phones and respond to emails quickly. Monitor social media.

Offer No-Hassle Refunds

Offer No-Hassle Refunds

Make returns as smooth and simple as possible. Offer “no-questions-asked” returns with a prepaid return label. Make it painless to cancel recurring billing contracts.

Communicate with Customers

Communicate with Customers

Keep customers in the loop at each step of the process. Many chargebacks are filed because the order didn’t arrive when expected. Document all communications with customers.

Ask for Card Security Codes (CVV)

Ask for Card Security Codes (CVV)

CVV codes are printed on the card and cannot be stored elsewhere. If the buyer doesn’t have the code, they likely aren’t the authorized cardholder.



Address Verification Service is an automated tool that compares the billing address given at checkout against the address on file with the bank. A disparity could indicate fraud.

Implement 3-D Secure

Implement 3-D Secure

3DS is an automated fraud detection program that compares over 100 data points to help ensure the cardholder is actually participating in the purchase.

Look Out for Red Flags

Look Out for Red Flags

An unusually high volume of purchases of the same goods, an order that breaks historical buying patterns for the customer, merchandise going to multiple addresses—don’t be afraid to verify any transaction that seems out of the ordinary.

Stay Up on Industry Regulations

Stay Up on Industry Regulations

Payment procedures change constantly. Ensure that your staff are trained and well-versed in all current procedures according to card network rules.

Obstacles to CNP Chargeback Prevention

The practices outlined above will help prevent chargebacks resulting from criminal fraud and merchant error. What about friendly fraud, though?

Unfortunately, your options are limited when it comes to friendly fraud prevention. In most cases, your best bet is to engage with chargeback abuse through a process called representment. This will let you resubmit the transaction, along with additional supporting documents, to the bank in hopes that it will overturn the chargeback.

The more information you have about a dispute, the better your odds of winning a reversal. That’s true in every chargeback case. The problem is that a lot of information is unavailable to you at the time of the transaction in the card-not-present environment. You didn’t have access to the physical credit card, so you’re unable to:

  • Compare the buyer’s signature to the one on the card
  • Ask for additional ID
  • Compare the buyer to a picture ID
  • Get an imprint of the physical card

After the sale, you may still find it hard to compile evidence. You’ll need as much shipping and delivery confirmation as you can get, plus anything else that proves the transaction was valid.

The representment process also involves complicated rules and tight deadlines. And, even if you win, you’ll still be saddled with chargeback fees and other expenses. All things considered, it’s no surprise that merchants tend to see limited success with chargeback representment.

Get Third-Party Help

The rules that govern the chargeback system are complicated, antiquated, and constantly shifting. It can be a full-time job just keeping current with regulations. Chargebacks coming from card-not-present fraud are worse…if for no other reason than there are so many more of them.

If you’re feeling overwhelmed by chargebacks, maybe it’s time to get back to the business of running your company. Chargebacks911® can take card-not-present chargebacks and other dispute issues completely off your plate and up your ROI. Contact us today to learn more.

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