Card-Present vs. Card-Not-Present Transactions

A Travis Credit Union 2020 survey found that Americans preferred payment method is debit or credit cards. Over half of the survey respondents believed convenience was the main reason why cards were their favorite payment type. If you’re a business owner, offering a variety of payment options, including cards, cash, and mobile wallets, can help you reach a broader customer base, improve the checkout process, and thus, help drive profits and growth. You have likely heard of card-present and card-not-present transactions, but it may not be clear how they are different in terms of application, processing costs, and fraud risks. Keep reading for a comparison of card-present and card-not-present transactions.

When you see card-present and card-not-present transactions, it may seem obvious what they are. Card-present transactions are in-person, while card-not-present transactions are not in-person. However, the differences between the two are not that clear. Instead of using only the physical location to determine which transaction type is used, it’s better to identify how the card is processed. Let’s look at some examples of how customers may use both.

A card-present (CP) transaction occurs when payment details are captured in person for a product or service. This can include cards that are physically swiped via a card reader machine or tapped or dipped via a card reader.

One of the many benefits of accepting card-present transactions is that the processing costs are much lower than CNP transactions. Since CP transactions require a higher level of security to complete transactions, payment processors classify them as having lower fraud risks and chargebacks. While payment processors charge different processing fees, CP transactions have lower rates. For example, a payment processor may charge 2.6 percent + $0.10 for each card-present transaction compared to 3.5 percent + $0.15 for every card-not-present transaction. If a merchant’s average transaction is $50, they will save $0.50 per transaction when customers use card-present methods. For merchants that want to save money and reduce card fraud, this transaction type is an excellent payment method to offer.

On the other hand, business owners will need specific card-processing equipment to accept debit and credit cards. Such equipment may include card, contactless, and EMV readers, which are an added expense that must be maintained and updated as payment technology changes.

Examples of Card-Present Transactions

• The customer’s card is swiped into a card reader device via the magnetic card strip.
• The customer’s card is inserted into a card reader device via the EMV chip.
• The customer’s mobile wallet (electronic data) is captured via a contactless POS.

A card-not-present (CNP) transaction typically occurs when the cardholder and credit card are not physically present during a purchase. Customers usually manually enter card information for CNP transactions rather than capturing the card details through a secure card machine. This usually includes remote methods, such as via phone, mail, fax, or online.

One of the main benefits of accepting CNP transactions is that it may be more convenient for customers. This is especially true during the global pandemic when customer shopping habits have shifted towards more remote purchases due to lock-downs, physical stores closing, and global supply chain shortages. Card-not-present transactions can also help boost sales as customers have the freedom to choose how to pay – in-person or remotely.

Of course, you can’t have the good without the bad. A primary disadvantage is that CNP transactions have a higher fraud risk than CP transactions. These transactions have higher risks because merchants cannot easily verify that a card belongs to the customer making a purchase. Indeed, it is difficult to determine who a customer is and if the card belongs to them, especially over the phone, the internet, or by mail. Without security measures to verify the customer, it is difficult for merchants to know whether they have received a legitimate or fraudulent transaction. Since fraud risks are high, payment processors and card brands will charge higher processing fees to prepare for potential card fraud and chargebacks.

Examples of Card-Not-Present Transactions

• The customer enters their card details via an online payment system (e.g., ecommerce site or app).
• The customer fills out their card details on a paper form and sends it via mail or fax to a business.
• The customer shares their card information over the phone.
• The customer gives their credit or debit card to a merchant, who enters the card details manually.
• The customer provides their card information for recurring billing services (e.g., monthly gym membership or fresh food deliveries).

In today’s digital age, cybercriminals are always looking for credit cards to steal, which they use to sell online or make purchases. Card-not-present transactions only require the cardholder’s name, address, and card number. With this basic information, hackers can make online purchases without anyone realizing they are not legitimate cardholders. Indeed, this makes CNP transactions a risky payment method for all involved – merchants, payment processors, banks, and customers.

To reduce the risks of CNP transactions, merchants can require customers to verify their identities. This verification process may include asking for the card’s CVV, a 3-digit security code on the back. Additionally, merchants can request customers to provide their billing ZIP code, photo ID, and email address. If the email address fails to send, it’s possible that the customer entered it incorrectly, or it’s a fake address, a red flag for fraud.

Furthermore, merchants can increase their payment security approach by partnering with a tokenization provider. A cloud tokenization platform like IXOPAY has the expertise and services to secure any payment data and store it outside of a merchant’s internal environment, maintain PCI compliance, and help businesses scale. As a result, this security partner can help you reduce card fraud and chargeback risks, optimize the payment process, and maximize your revenue potential.