Card-Not-Present vs. Card-Present Transactions

Card-Not-Present vs. Card-Present Transactions

By In Information, Uncategorized On February 4, 2015


Understanding the Difference between Card-Not-Present vs. Card-Present Transactions

New merchants have a major decision they must address early on in the business startup process. Should the business accept card-not-present or card-not-present transactions?

These two different types of credit card transactions involve different benefits and risks.

What’s The Difference?

The two different types of credit card transactions are basically what they sound like.

The Card-Present Transaction

Card-present transactions happen in brick-and-mortar establishments. The customer presents the card to the merchant. The merchant then swipes the card to complete the payment process.

Some examples of card-present transactions include paying for a banana split at an ice cream shop, buying a pair of pants at a clothing retailer, or booking a room at a hotel.

The Card-Not-Present Transaction

With card-not-present transactions, the merchant and customer are not in the same place at the same time. Rather than swipe a physical credit card, the merchant simply processes information the shopper provides.

These impersonal transactions usually take place through the mail, over the phone or via the internet. Some examples of card-not-present purchases include sending a magazine subscription application through the mail, ordering a taxi over the phone, or buying e-reader books online.

The Fraud Risks Associated With Each Shopping Experience

Because the purchases happen face-to-face, most card-present transactions are consider low fraud risks. However, counterfeit transactions do occur—which means there is still a risk for chargebacks.
• A fraudster can alter the account number on a card
• A stolen card can be used without authorization
• Duplicate cards can fraudulently be created
• If the magnetic stripe is unreadable and the account information has to be manually entered, the corresponding errors can cause problems

Most merchants commonly associate chargeback risks with card-not-present transactions. These faceless interactions do increase the likelihood of fraud.
• Fraudsters with stolen credit card information can make unauthorized purchases, causing huge profit losses for the merchant
• Shoppers with “buyer’s remorse” could falsely claim a product never arrived
• Because customers can’t physically handle the items, there is a risk of unmet expectations

It’s been reported that card-not-present fraud costs merchants more than $11 billion each year. And the average chargeback costs $3.08 for each $1 of fraudulent activity.

Are the Benefits Worth the Risk?

While it’s true that card-present transactions have a lower level of risk, they also reduce the merchant’s profitability.

Card-not-present merchants have a much wider consumer base. In 2012, there were 1.06 trillion online transactions. By 2018, card-not-present merchants can expect the number of purchases to exceed 2.36 trillion.

Some reports point to the success of a combined sales effort; brick-and-mortar merchants who take their products and services online have been able to effectively mitigate risk while boosting profits.

Choosing the Best Option

In the end, merchants must carefully weigh the risks associated with their chosen industry. Both card-not-present and card-present environments have pros and cons.

If you choose to launch a card-not-present business, let us help you lay the foundation for effective chargeback prevention—just fill out the form to the right. By reducing the risk of fraud and working to prevent chargebacks from happening, card-not-present merchants can benefit from advanced growth opportunities.[/vc_column_text][/vc_column][/vc_row]