The Ins and Outs of Card Not Present Transactions

card not present transactions

When talking about transactions, the terms card present and card not present don’t sound especially confusing. Prior to the rise of online transactions, mobile payments and other payment categories, these two labels were relatively easy to define. However, as the payment landscape continues to change, more merchants are finding themselves with questions about card not present transactions and how these transactions can affect their business.

What Defines a Card Not Present Transaction?

With card not present transactions, electronic data from a card’s chip or strip is not captured at the time of the sale. If it is, the transaction is considered card present. Online purchases are card not present transactions, since the card is not swiped or inserted and no information is read from the card. The same is true for subscription billing, as well as electronic invoicing and payment apps that don’t use a card reader.

How Do Card Not Present Transactions Affect Merchants?

Merchants face two main issues when it comes to card not present sales: chargeback liability and processing costs. Generally, processors look at card present transactions as less risky. For transactions involving a chip card, the liability for chargebacks falls on a bank or processor instead of the merchant. But with any type of card not present transaction, the likelihood of liability for a chargeback falling on the merchant goes up significantly.

Although this may sound like bad news, it doesn’t necessarily have to be. As long as you’re aware of this potential liability and take steps to hedge against it, you shouldn’t have any major issues with your card not present transactions.

Secondly, there’s the issue of cost. With both card present and card not present transactions, pricing is based on three factors: assessments, interchange and markup, with interchange having the biggest impact on cost. Card not present transactions tend to have a higher interchange cost than card present transactions.

To combat this higher cost, first look at how you handle transactions and see if it’s possible to make any changes to reclassify them as card present. And if that’s not an option for your business, comparing different processors may help you find a company that can provide everything you need at lower rates than you’re currently paying.


Posted on Monday, May 15th, 2017