Billing and Payments

Card-Present vs. Card-Not-Present Transactions: What You Need to Know

John Lehman
Mar 12, 2018

If you’ve ever investigated the intricacies of credit card processing rates, you may have come across the terms card-present (CP) and card-not-present (CNP). These payment categories affect both the risk of a transaction and its cost, but there’s more to them than having a card in hand when running a payment.

In this post, we’ll break down precisely what these terms mean, as well as the important factors to consider when processing each type of transaction.

Defining the terms

At first glance, the definition of these terms seems obvious—card-present transactions occur in person and card-not-present transactions don’t occur in person. However, the physical location of the card being used to make a purchase is actually not the most differentiating factor. The key difference between the terms is how the card is processed.

A transaction is generally considered card-present when it’s made by one of the following methods:

  • Swiping the card’s magnetic strip into a card-reading device
  • Reading a card’s EMV chip by inserting it into a card-reading device
  • Capturing the card’s electronic data from a contactless card reader

In contrast, a transaction is generally considered card-not-present when it’s made by one of these methods:

  • Entering payment information into an online payment portal
  • Filling out payment information on a form to be mailed to a business
  • Reciting payment information over the phone to a business

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Even if a client were to hand their card to you, and you manually keyed in the card number to complete the transaction, it would still be considered card-not-present. Why? On paper, there is no way to prove whether the card information was keyed in by your business with the client’s consent or by a third party who’s not authorized to do so. When a card is swiped or inserted into a card-reader, the electronic data contained on the card is captured instantly, providing physical proof that the card was authorized to make the purchase.

Fraud risk implications

Historically, credit card companies have considered card-not-present transactions more risky than card-present transactions. This is largely because in the past, simply knowing a credit card number was enough to make a fraudulent purchase online or over the phone.

To combat increased fraud risk, the card payment industry has invested in technological improvements to make card-not-present payments more secure. For example, online payment processors help merchants get additional verification from cardholders, such as requiring a correct billing address or the card’s CVV code. This code is only located on the physical card, making it practically impossible for a cyber criminal to provide the code accurately.

By partnering with a secure online payments company and setting up your payment forms for maximum fraud prevention, you can greatly reduce the risk of fraud. Online payment solutions can shoulder the burden of storing your client’s credit card data, eliminating the need to store sensitive data on your own devices. The best payment solutions are equipped with advanced data encryption and are regularly audited by an outside security expert to ensure their systems are protecting your data properly.

Today the benefits of offering clients a variety of convenient payment options make it well worth your while to accept both card-present and card-not-present transactions. For added security, work with your payment processor to require clients to enter their card’s CVV code to complete online transactions.

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Impact on processing rates

Card-present versus card-not-present also affects the processing rate you pay on a particular transaction. Generally speaking, card-present transactions may have lower rates compared with card-not-present transactions. But the slightly higher rate is well worth the tradeoff of being able to offer clients more convenient payment options, especially the ability to pay your bill on their own time, from their smartphone or computer, which can shorten collection times and boost firm cash flow. With online payments, you also get the added security benefit of letting clients enter their card information themselves into a secure portal, so that you never have to take possession of that sensitive data or store it on-site at your office.

One way you can lower your rates for card-not-present transactions is by collecting the client’s address during the payment process. Your payment provider can instantly verify address information through the AVS, or address verification service, comparing it with the address on file from the cardholder’s bank. If the address is verified, the payment will go through and the transaction will be considered less risky as a result, thereby reducing the fee for processing the transaction.

Different payment processors price or bundle their offerings differently. If you expect the majority of your transactions to be card-not-present, look for a payments provider with pricing that caters to that type of payment.

To learn more about CPACharge, an online payment solution with pricing and security that are optimized for both card-present and card-not-present transactions, download the solution brochure.

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