What is Card Not Present Transaction?

Legal Definition
A card not present transaction (CNP, MO/TO, Mail Order / Telephone Order, MOTOEC) is a payment card transaction made where the cardholder does not or cannot physically present the card for a merchant's visual examination at the time that an order is given and payment effected, such as for mail-order transactions by mail or fax, or over the telephone or Internet.

Card not present transactions are a major route for credit card fraud, because it is difficult for a merchant to verify that the actual cardholder is indeed authorizing a purchase.

If a fraudulent CNP transaction is reported, the acquiring bank hosting the merchant account that received the money from the fraudulent transaction must make restitution; whereas with a swiped (card present) transaction, the issuer of the card is liable for restitution. Because of the greater risk, some card issuers charge a greater transaction fee to merchants who routinely handle card not present transactions.

The card security code system has been set up to reduce the incidence of credit card fraud arising from CNP.
-- Wikipedia