Card-not-present (CNP) fraud is a growing concern for businesses, especially as online transactions become more common. This type of fraud, where stolen credit card details are used without the physical card, has led to billions in losses globally. In 2023 alone, U.S. businesses faced $9.49 billion in CNP fraud losses, with projections showing this figure rising to $12.87 billion by 2026. Beyond financial damage, the costs of chargebacks, lost customer trust, and reputational harm make it critical for businesses to take action.

To help businesses protect themselves, here’s a quick overview of the key steps to prevent CNP fraud:

1. Fraud Detection Tools: Use real-time monitoring, AI, and machine learning to spot suspicious transactions.
2. Secure Payment Channels: Implement encryption, tokenization, and PCI DSS-compliant systems.
3. Authentication Measures: Add multi-factor authentication (MFA), AVS, CVV checks, and 3D Secure 2.0 for extra security.
4. Employee and Customer Awareness: Train staff to detect fraud and educate customers on safe payment practices.
5. Chargeback Management: Develop clear procedures to handle disputes and identify fraud patterns.
6. Vendor Oversight: Ensure third-party vendors follow strict security standards and meet compliance requirements.
7. Regular Security Updates: Conduct audits, update policies, and stay informed on evolving fraud tactics.

Step 1: Set Up Fraud Detection Tools

Combatting card-not-present (CNP) fraud requires more than basic security measures. With over 70% of all credit card fraud in 2022 being CNP-related, businesses must adopt robust detection tools that monitor transactions in real time. These tools use advanced algorithms to identify suspicious activity and work as a critical layer in your fraud prevention strategy.

Choose Fraud Detection Software

Picking the right fraud detection software is essential to stay ahead of fraudsters while ensuring legitimate customers face no unnecessary hurdles. Look for software that offers real-time transaction monitoring and uses behavioral analytics to spot unusual patterns. AI and machine learning features are particularly valuable, as they allow systems to adapt to evolving fraud tactics and minimize false positives.

Make sure the software can handle high transaction volumes without losing accuracy, especially during peak periods or rapid business growth. It should also meet your industry’s specific data security standards, which can vary widely. Features like customizable rules and global profiling are especially useful for identifying fraud trends in international transactions.

Once you’ve chosen the right software, the next step is to secure your payment channels.

Use Secure Payment Gateways

Payment gateways act as a frontline defense by encrypting and protecting sensitive customer data. Look for gateways that use strong encryption protocols, such as SSL or TLS, and comply with PCI DSS standards. Encryption and tokenization ensure that sensitive information remains secure throughout the transaction process.

You’ll also need to decide between hosted and integrated gateways based on your business needs. Hosted gateways simplify compliance but may redirect customers away from your site, while integrated gateways offer a seamless experience but require more robust security measures on your end. Considering that CNP fraud accounted for $19.43 billion in global losses in 2020 – nearly 70% of all fraud losses – partnering with a trusted provider like Secured Payments can help ensure your payment channels are well-protected.

Add Predictive Analytics

Predictive analytics takes fraud prevention to the next level by identifying potential threats before they occur. Unlike traditional approaches that react to fraud after the fact, predictive analytics uses AI models to monitor transactions, behavior, and context in real time. These tools can instantly score transactions, flagging high-risk ones while approving low-risk ones.

Fraudsters often test stolen card details with small purchases before making bigger transactions, so predictive analytics is crucial for spotting such patterns early. For example, Mastercard’s AI-driven tools helped prevent over $35 billion in fraud-related losses over three years, and Synchrony achieved over 90% accuracy in identifying fraudulent activity.

To integrate predictive analytics effectively, start with a thorough audit of your payment data to ensure it’s clean and properly structured. Develop risk signals tailored to your platform, and connect predictive models to your payment gateway using APIs or microservices for instant scoring. Establishing a feedback loop between fraud outcomes and model updates will help your system stay ahead of new fraud tactics. One organization using Visa’s fraud prevention tools saw a 30% reduction in fraud while increasing transaction approvals by 10%.

Step 2: Secure Your Payment Processing

Protecting your payment processing system is crucial for safeguarding cardholder data during both transmission and storage. With cybercrime costs estimated to hit $10.5 trillion by 2025 and global fraud losses expected to reach $40.62 billion by 2027, it’s clear that strong data security and compliance measures aren’t just optional – they’re essential. Here’s how encryption, tokenization, and PCI DSS compliance can make your transactions more secure.

Use Encryption and Tokenization

Encryption and tokenization are two powerful tools to keep sensitive payment data safe. Encryption scrambles data into unreadable formats using complex algorithms and keys, ensuring it remains secure during transmission. Tokenization, on the other hand, replaces sensitive information with unique tokens, reducing the scope of PCI DSS compliance and making stored data less vulnerable to breaches.

For maximum protection, combine encryption for data in transit with tokenization for data at rest. This dual approach helps combat card-not-present (CNP) fraud while maintaining compatibility with existing systems. According to Juniper Research, tokenization is expected to be used in 1 trillion transactions by 2026. Working with trusted providers like Secured Payments can give you access to integrated solutions that seamlessly implement these measures, ensuring secure and reliable transactions.

Follow PCI DSS Standards

PCI DSS compliance is another critical layer of protection for your payment processing. The Payment Card Industry Data Security Standard outlines a robust framework to safeguard cardholder data, but as of 2023, only 14.3% of organizations had achieved full compliance. This is concerning, especially since card-not-present fraud was 81% more prevalent than card-present fraud in 2021.

The PCI DSS framework includes 12 key requirements, such as maintaining firewalls, avoiding default system settings, encrypting data transmissions, protecting stored data, and enforcing strict access controls[14]. To achieve compliance, define your data scope, conduct risk assessments, document processes, and submit an Attestation of Compliance. Regular monitoring and updates are essential to maintain compliance and reduce fraud risks.

Step 3: Add Multi-Factor Authentication and Verification

After implementing strong detection and processing security, the next step is to ensure transactions are tightly linked to legitimate cardholders. This is where authentication plays a critical role. By layering identity verification, you can block fraudulent transactions more effectively. While encryption and PCI compliance set the foundation, adding strong authentication measures ensures that only authorized users can complete purchases. In 2021, U.S. retailers faced an average of 1,740 fraud attempts every month, with over half of these attempts succeeding. Clearly, incorporating multi-factor authentication (MFA) into your payment system is no longer optional.

Start by requiring multiple verification methods for every transaction.

Turn On MFA/2FA for Transactions

Multi-factor authentication (MFA) adds an extra layer of security by requiring customers to confirm their identity using at least two methods, such as a password, a mobile device, or biometric data. A risk-based approach can make MFA even more effective by analyzing user behavior – like spending patterns or transaction timing – and triggering additional checks for unusual activity [17]. For high-risk transactions, consider using dynamic challenge questions that only the legitimate cardholder can answer. Most MFA systems are flexible and can be activated through your bank’s portal or mobile app.

Use AVS and CVV Checks

Address Verification Service (AVS) and Card Verification Value (CVV) checks are essential tools for catching fraud during checkout. These systems verify the billing address and the card’s security code in real time [21][20].

AVS response codes provide insights into the quality of the match:

Code	Visa	MasterCard	Discover	American Express
Y	Address & 5-digit or 9-digit ZIP match	Address & 5-digit ZIP match	Address only matches	Address & ZIP match
A	Address matches; ZIP does not match	Address matches; ZIP does not match	Address & 5-digit ZIP match	Address only matches
Z	Either 5-digit or 9-digit ZIP match, no address match	5-digit ZIP matches; address does not match	5-digit ZIP matches; address does not match	ZIP code only matches
N	Neither ZIP nor address match	Neither ZIP nor address match	Neither ZIP nor address match	Neither ZIP nor address match

When partial matches or "no match" responses occur, ask customers to enter their billing address exactly as it appears on their statement. Enforcing CVV checks is another simple step that can significantly cut down on fraud.

Once these basic checks are in place, consider upgrading to dynamic authentication methods like 3D Secure 2.0.

Use 3D Secure 2.0

3D Secure 2.0 (3DS2) represents a major leap forward in transaction security. According to Visa, merchants using 3DS2 see 40% less fraud, and 95% of transactions can go through a seamless authentication process. Unlike the older 3D Secure 1.0 – which relied on static passwords and worked only in browsers – 3DS2 uses dynamic passwords, biometrics, and supports both browsers and mobile apps. It also analyzes over 150 data points per transaction compared to just 15 in the older version.

	3D Secure 1.0	3D Secure 2.0
METHOD	Static password	Dynamic passwords & biometrics
FRICTION	100% of transactions	About 5% of transactions
INTERFACE	Browser	Browser & in-app
DATA	15 data elements	150+ data elements
REGION	Domestic	Domestic & international

For the best results, combine 3DS2 with AVS and CVV checks. It’s also important to explain the benefits of 3D Secure to customers to avoid confusion during the authentication process. With 82% of merchants already using 3D Secure or 3DS2 – and 60% reporting an improved customer experience – adopting 3DS2 is a smart move that aligns with industry standards.

For tailored solutions to protect your transactions, visit Secured Payments at https://securedpaymentsllc.com.

Step 4: Train Staff and Educate Customers

Your employees and customers are your first line of defense against CNP fraud. Research highlights that organizations without fraud awareness training lose nearly twice as much money compared to those that prioritize it. Trained employees are also twice as likely to identify and report suspicious activity. These efforts work hand-in-hand with the technological measures discussed earlier.

Train Employees on Fraud Detection

Creating a culture of fraud prevention starts at the top. Leadership should set the tone, making vigilance a shared responsibility across the organization.

Equip employees with the skills to recognize warning signs and implement a "Stop, Call, Confirm" approach for handling questionable transactions. For high-value transactions, consider requiring dual approval.

Tailor your training to include your company’s fraud policies, reporting protocols, whistleblower protections, and any fraud risks specific to your industry. Use a combination of digital tools, live training sessions, and interactive workshops to keep the material engaging. Additionally, set up anonymous reporting channels and conduct regular tests to ensure anti-fraud practices are effective.

As your team becomes more adept at spotting fraud, extend these efforts to your customers, empowering them to protect their own transactions.

Teach Customers Safe Payment Practices

Educating customers is just as important in reducing the risks of CNP fraud. As one expert points out:

"It’s also essential that customers are made aware of how payment cards and their associated information get stolen, and what they can do to prevent this from happening."

Focus on practical, easy-to-follow steps. Encourage customers to:

• Use EMV chip cards or contactless RFID payments for added security.
• Choose ATMs located within bank branches rather than standalone machines.
• Set up real-time account alerts, create strong passwords, and stay vigilant against phishing attempts.

Provide clear guidance for immediate action if their card is lost or stolen, such as contacting their bank or card provider right away. Share fraud prevention tips regularly through newsletters, your website, and seasonal reminders during times when fraud risk tends to increase.

Jeff Taylor, Senior Vice President at Regions Bank, sums it up well:

"Creating a company culture where payment fraud can’t thrive is so critical. Building an environment where everyone owns fraud will foster this culture."

When both employees and customers understand their roles in preventing fraud, they create a powerful human barrier that enhances your technical defenses. Together, these efforts build a stronger, more secure environment for everyone.

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Step 5: Handle Chargebacks and Disputes

Chargebacks are a costly issue for merchants, with an average loss of $3.75 for every dollar disputed and total losses surpassing $100 billion in 2023. Managing chargebacks effectively not only protects your revenue but also helps uncover fraud patterns that could indicate broader security risks. To tackle this, you need a combination of preventive measures and responsive systems working in harmony. Start implementing these strategies now to minimize losses and identify potential fraud.

Create Chargeback Procedures

Having a clear and structured process for handling chargebacks ensures your team can respond efficiently and consistently to disputes. This approach helps maintain your revenue and strengthens your standing with payment processors.

One way to reduce chargebacks is by improving customer communication. Be transparent about your policies, and make sure transaction descriptions are clear and easy to understand. This can prevent misunderstandings that lead to disputes.

A strong chargeback response system should include detailed transaction records, such as customer information, purchase details, shipping records, and communication logs. These records will support your case during disputes. Time is critical when managing chargebacks. Responding to notifications quickly can help reduce costs and protect your revenue. Train your team to understand chargeback reason codes so they can diagnose and address issues effectively. Automating chargeback processing is another option to streamline operations and free up staff for other important tasks.

Customer service representatives play a key role in managing chargebacks. Equip them to identify different chargeback reasons and respond empathetically to legitimate concerns. At the same time, they should exercise sound judgment when handling requests that fall outside standard return policies. Once your procedures are established, regularly review chargeback data to spot potential issues.

Watch for Fraudulent Complaints

Once your chargeback procedures are in place, the next step is to monitor disputes closely to detect fraud patterns. Friendly fraud – when cardholders dispute legitimate transactions – accounts for 44% of chargeback fraud, and chargebacks overall have been increasing by 20% annually. Vigilant monitoring is essential.

Use advanced fraud detection systems that incorporate machine learning and behavioral analytics to identify suspicious transactions. Keep an eye on transaction data and customer behavior for unusual patterns that deviate from normal purchasing habits. Assign risk scores to transactions by evaluating factors like transaction amount, location, customer history, and product type. This systematic approach helps identify high-risk situations before they escalate into disputes.

Key fraud types to monitor include friendly fraud, criminal fraud (using stolen credit cards), and triangulation fraud (setting up fake stores with stolen card data) [32][33]. By regularly analyzing chargeback data, you can uncover recurring issues and address their root causes. This insight allows you to fine-tune your fraud prevention strategies and strengthen vulnerable areas.

When dealing with potentially fraudulent complaints, it’s important to balance thorough investigations with maintaining customer trust. Communicate directly with cardholders to resolve their concerns quickly and avoid escalation to formal chargebacks. Offering refunds, replacements, or other solutions can help maintain customer satisfaction while protecting your business from fraudulent claims.

The ultimate goal isn’t just to win individual disputes. It’s to develop a deeper understanding of the fraud patterns that threaten your business and create systems that prevent future losses while preserving strong relationships with legitimate customers.

Step 6: Secure Third-Party Vendor Relationships

Third-party vendors can pose risks to your payment system. When these vendors handle payment data or connect to your systems, any security gaps on their end could become vulnerabilities for your business. A single weak link in a vendor’s security can lead to card-not-present (CNP) fraud, making it critical to closely monitor and manage every third-party connection.

"Outsourcing a PCI function doesn’t mean outsourcing the liability. Handing off your payment processing or IT infrastructure to a third-party vendor does not absolve your business of PCI DSS responsibilities. The standard is explicit – if a vendor’s service can affect payment card account data security, you remain fully accountable."

Poor management of vendors not only increases the risk of CNP fraud but also exposes your business to regulatory fines, financial losses, lawsuits, and damage to your reputation. To mitigate these risks, a strong third-party risk management (TPRM) program is essential. It ensures that vendors meet cybersecurity requirements and uphold the security standards your business relies on.

Check Vendors for Security Compliance

Before signing contracts, take the time to thoroughly evaluate each vendor’s security practices. Confirm their PCI DSS compliance and ensure they meet or exceed your organization’s security standards. Request documentation like an Attestation of Compliance (AOC), but remember, AOCs often apply only to specific systems or services, so they may not fully reflect the vendor’s role in your operations.

To avoid confusion about responsibilities, ask vendors for a PCI DSS Requirements Responsibility Matrix. This document clarifies which compliance tasks are handled by the vendor, your organization, or shared between both. VikingCloud highlighted the importance of this matrix in June 2025, noting that it helps prevent gaps in compliance management and ensures accountability.

Include specific security requirements in your vendor contracts. These should cover testing for phishing, hacking, and social engineering attempts. Contracts should also outline PCI DSS responsibilities and allow your company to perform regular security audits of the vendor’s systems.

Maintain a detailed inventory of all third-party vendors and assign a dedicated team member to manage each relationship. This ensures no vendor is overlooked in your security oversight.

Request Regular Security Reports

Once you’ve established vendor relationships, ongoing monitoring is key to maintaining security. Check each vendor’s PCI DSS compliance status annually [40]. Depending on the level of risk they pose, adjust the frequency of assessments: annually for high-risk vendors, every 18–24 months for moderate-risk ones, and every 2–3 years for low-risk vendors.

Review SOC 2 reports yearly to evaluate vendor controls over security, confidentiality, availability, and privacy. Set clear performance standards in vendor agreements, such as uptime requirements, effectiveness of security measures, incident response times, and compliance rates.

Regularly request security reports and audit results from vendors. Define clear procedures for reporting security incidents or vulnerabilities promptly. Use continuous monitoring tools to track vendor activities and identify potential security issues. For instance, UpGuard’s Vendor Inventory feature, introduced in April 2025, allows businesses to monitor a vendor’s security posture against industry benchmarks in real time.

Stay proactive by holding periodic discussions, conducting site visits, and reissuing security questionnaires to ensure vendors maintain strong security practices over time. When ending a vendor relationship, implement a strict offboarding process that requires the vendor to destroy or delete all data related to your business. This step helps prevent former vendors from becoming a security risk down the line.

Step 7: Review and Update Security Regularly

CNP fraud methods are constantly changing, which means keeping your security measures up-to-date is a must. With eCommerce CNP fraud losses expected to hit $28.1 billion by 2026, and historical data showing losses of $19.43 billion in 2020 and $125 billion in U.S. chargeback costs in 2021, it’s clear that security isn’t a one-and-done task – it’s an ongoing effort.

Schedule Regular Security Audits

Frequent security audits are key to spotting vulnerabilities before they become major issues. Focus on critical areas like:

• Checking security certificates and ensuring PCI compliance
• Removing inactive plugins and keeping shopping cart plugins updated
• Performing regular backups
• Enforcing strong administrative passwords
• Using active anti-virus and anti-fraud tools [46]

Penetration testing can also be a game-changer by simulating real-world attacks to find weak spots. Keep an eye out for unusual order patterns, such as spikes in high-value transactions, repeated use of the same card, or mismatched billing and shipping addresses.Use the insights from these audits to refine your data protection policies and strengthen your defenses.

Maintain Data Protection Policies

After every audit, update your data protection policies to tackle new threats. These policies are the backbone of your fraud prevention strategy. Aim to review them at least once a year – or sooner if incidents arise.

Equip your team to recognize warning signs like rush shipping requests, mismatched order details, repeated failed transactions, small test purchases before larger orders, excessive login attempts, or frequent refund requests.These indicators can point to potential fraud. Remember, for every $1 lost to CNP fraud, U.S. merchants lose an additional $3.50 in related costs.

Stay ahead by keeping up with the latest fraud trends and updating your strategies as new threats emerge.

For a more streamlined approach, consider partnering with Secured Payments. Their integrated payment solutions come with built-in fraud prevention tools and compliance support, letting you focus on growing your business without compromising on security.

Conclusion: Protecting Your Business from CNP Fraud

Card-not-present (CNP) fraud is a growing threat, with total fraud and scam losses projected to hit $39 billion by 2025. Tackling this issue requires more than just basic measures – it calls for a multi-layered strategy. The seven-step checklist outlined earlier provides a solid starting point. These steps include using fraud detection tools, securing payment processes, implementing multi-factor authentication, training employees, managing chargebacks, vetting vendors, and conducting regular security reviews.

The fight against fraud is ongoing. Businesses lose an estimated 5% of their revenue annually due to fraud, and with 82% of data breaches tied to human error, combining advanced technology with proper training becomes essential.

One effective approach is adopting systems that integrate seamlessly with your current banking infrastructure through secure APIs. These systems can monitor transactions in real time, use machine learning to prioritize risk alerts, and automate processes to reduce human error. For businesses seeking comprehensive fraud prevention, Secured Payments offers solutions tailored to e-commerce and high-risk merchant services. Their tools not only secure transactions but also support compliance, helping your business grow while staying protected.

FAQs

What should businesses consider when selecting fraud detection software to combat card-not-present (CNP) fraud?

When selecting fraud detection software to combat CNP fraud, businesses should focus on solutions that leverage AI and machine learning. These technologies excel at spotting and adapting to shifting fraud tactics, making them a powerful tool in staying ahead of threats. Additionally, choosing software with customizable settings ensures it can meet your specific needs while integrating smoothly with your current security systems.

It’s equally important to assess whether the software can address your business’s unique fraud challenges. A good solution should strike the right balance between managing risk and reducing false positives. Tools that analyze global transaction data can offer a broader perspective, helping to improve fraud detection and prevention. By considering these aspects, businesses can enhance their security measures and create a safer payment environment.

How does multi-factor authentication (MFA) improve transaction security for businesses?

Multi-factor authentication (MFA) adds an extra layer of security to transactions by requiring users to confirm their identity using multiple verification methods. These can include something you know (like a password), something you have (like a one-time code), or something you are (like a fingerprint). This combination makes it much more difficult for unauthorized individuals to gain access to sensitive accounts or systems.

MFA doesn’t just lower the chances of account breaches and fraud – it also strengthens customer confidence in your business. On top of that, it helps companies comply with data security regulations, creating a safer payment environment for everyone involved.

Why should businesses regularly update their security measures and perform audits to combat card-not-present (CNP) fraud?

Keeping your security measures up-to-date and performing regular audits is crucial to shielding your business from the evolving strategies of card-not-present (CNP) fraud. Cybercriminals are always refining their techniques, and relying on outdated systems can expose your payment processes to unauthorized transactions.

Using modern security tools like multi-factor authentication and advanced fraud detection systems can significantly lower the chances of fraud and help avoid expensive chargebacks. Regular audits play a key role in spotting vulnerabilities, ensuring your defenses remain strong, and staying prepared for new threats. This not only protects sensitive financial data but also helps maintain the trust of your customers.