When you hear the terms “card present” and “card not present” bandied about by people discussing credit card transactions, they may seem self-explanatory. Either the credit card was there or it wasn’t. However, there is more ambiguity than you may think when it comes to these two types of transactions.
Card-present transactions defined.
A purchase is only considered to be card present if the physical credit card is on hand and available and if electronic data is obtained during the sale. This can be done by swiping a magnetic stripe card in your credit card reader, dipping an EMV chip card, tapping a “smart” card or phone, or accepting a contactless payment by means of near-field communication technology.
Card-not-present transactions defined.
Any other types of payment methods can be considered to be card-not-present transactions. The following technologies are used when a customer is not physically present with their card or smartphone.
- Online shopping carts.
- Electronic invoicing.
- Subscription or recurring billing.
- “Buy” buttons on your website.
- Orders taken over the phone using a virtual terminal.
- Smartphone or tablet apps that allow customers to complete their purchases using mobile payments.
In all cases of card-not-present transactions, the electronic data is not provided along with the transaction.
Why should you care about card-present vs. card-not-present transactions?
Maybe you’re thinking that the distinction between these kinds of transactions is only a matter of semantics. The reality is that understanding what sets them apart can help you save money.
That’s because the type of transaction you process affects what you will pay in processing costs. Typically, you will pay less if the card is physically present and swiped, dipped, or tapped. Credit card processing companies incur more risk with purchases that are made through ecommerce or by other card-not-present methods. Not surprisingly, the cost of this added risk is passed on to you as the merchant.
In some cases, you may have little or no choice but to accept card-not-present payments. Ecommerce is a prime example of a business model that makes them unavoidable. However, many merchants unnecessarily incur additional costs when they manually key in a transaction even when the customer offers their physical card.
Additionally, you need to consider the issue of chargeback liability. Chargebacks occur when customers go directly to their bank to ask for a refund after purchasing from you. These situations occur for any number of reasons, including dissatisfaction with the product, ambiguous return policies, and outright fraud. As we stated above, card-not-present transactions are considered to be riskier. Therefore, you should take action whenever possible to use a credit card reader that allows your customer to dip, swipe, tap, or wave their mobile device to complete a purchase.
Still confused?
If you’re still a little foggy when it comes to the difference between card-present and card-not-present transactions, ask yourself the following question about any individual payment: Is there a way to prove that the card information was entered by you or one of your associates with the customer’s consent? By contrast, the data on a card that is swiped, dipped, or tapped is immediately captured, providing proof that the credit card use was authorized.
The good news is that card-not-present payments are a lot more secure than they once were thanks to the efforts of the card industry. For instance, you can implement security measures for your ecommerce business that include Address Verification Services (AVS) and 3-D Secure technology that require customers to take an extra step to verify that they are who they say they are. This lowers the risk and potentially reduces the fees that you will be expected to pay. Furthermore, you can establish a relationship with an online payments company that can safely store and encrypt your customers’ card payment data, taking that burden off your shoulders.
In today’s competitive marketplace, you should do everything you can to provide customers with choices, including whether they pay with a physical credit card or by other means. Although card-not-present transactions are generally costlier, it is probably worth the trade-off to offer them. When you give this extra layer of choice, your customers can pay on their own time and from any location. Incidentally, you can lower what you will pay for card not present transactions by obtaining your customer’s address.
Understanding how card-present and card-not-present transactions differ from each other can be advantageous for your business. Armed with this information, you may be able to reduce costs while still providing your customers with the payment choices that are so important to them.
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