What information does the Card Validation Code (CVC) use to aid in fraud prevention?

The Card Validation Code (CVC) plays a crucial role in fraud prevention by enhancing the security of card-not-present transactions, such as those conducted online or over the phone. CVC is a three-digit (or four-digit) code printed on the credit or debit card, separate from the card number. The intrinsic function of the CVC is to provide an additional layer of security, as it indicates that the customer is physically in possession of the card at the time of the transaction.

The CVC is not stored in the magnetic stripe or secure chip of the card, which means that even if a thief obtains the card number and expiration date, they cannot complete a transaction without also knowing the CVC. When a payment is initiated, the merchant captures the card number, expiration date, and CVC, then sends this information to the card issuer for verification. The issuer then checks the CVC against the information on record. If the CVC matches, it indicates that the cardholder is likely to be genuine, thus mitigating the risk of unauthorized use.

The effectiveness of the CVC in preventing fraud stems from its requirement of the code during online transactions, which thieves often cannot provide, thereby reducing the likelihood of successful fraudulent activity.