Determining and identifying hidden fees and costs in payment processing is an incredibly confusing and overwhelming process. On the surface, it may seem random that keyed transactions cost more to process than swiped or tapped, despite them both being processed through a POS app. This trend continues throughout your payment options, like the increased cost for invoices and online payments vs those processed through a POS app or credit card reader. The first step in identifying these hidden costs is understanding the difference between card-not-present and card-present transactions.

Card-Present VS Card-Not-Present Transactions

Determining the difference can be inherently confusing due to the naming conventions of these transactions. With the name “card-not-present”, a merchant may assume every time they’re handed a card, the sale is categorized as “card-present”. But this is not solely determined by the physical presence of a card, but by how that card is specifically processed. Ignoring the card presence, and just identifying how the data was processed is an often more reliable way to identify the type of transaction.

This easily defines card-present transactions as electronically facilitated sales, and card-not-present as non-electronically facilitated sales. For example, some independent freelancers may physically copy your card information, labeling it as “card-not-present” since the data is collected physically. And on the other hand, tap-to-go mobile payment options like Apple Pay are considered “card-present” since the data is passed electronically.

These different payment types fall into either card-not-present or card-present.

Common Card-Present Transactions

• Swiping via an external card reader on a smart device
• Tapping or scanning digital wallets
• Countertop credit card terminals

Common Card-Not-Present Transactions

• Automatically billed recurring payments
• Phone orders
• Client Invoices
• eCommerce / online shopping

Although processing credit cards costs money regardless of whether you do it in person or online, you’ll generally face slightly higher fees for card-not-present transactions.

Understanding The Cost of Card-Not-Present Transactions

CNP transactions cost more because they are exposed to a greater risk of chargebacks, friendly fraud, and malicious fraud. Of course, all credit card processing presents some level of risk, but defining the cost hinges on determining which method presents the greatest stakes.

Using an interchange-plus pricing structure for your merchant account will result in higher interchange rates for card-not-present transactions.  Not to mention, with card networks charging more for these types of transactions because they assume greater risk. Even third-party processors that don’t charge interchange fees directly will still add a markup to their base rate for card-not-present payments.

Although not all card-not-present transactions are equal in terms of risk. For example, you will oftentimes see a higher fee for a keyed-in entry than for an online transaction. This is because there are typically some security measures (such as address and CVV verification) in place for online purchases, whereas keyed transactions have no such security measures.

CNP Credit Card Fraud’s Cost to Your Business

The accelerated integration of chip cards into payments, as well as the U.S. EMV liability shift, has played a huge role in the increased rate of card-no-present fraud across the industry. With amplified security measures integrated into these card-present transaction methods, card-not-present methods slowly became more and more exposed to fraud, while already being vulnerable due to the unverifiable nature of the physically collected card information. A data breach greatly affects your business by not only being an embarrassing public relations issue, but by also being responsible for the cost of any fraudulent charges in a card-not-present sale.

Small businesses that have yet to integrate more secure payment methods are more likely to be targeted by fraudsters searching for these vulnerabilities. So, if you’re still transitioning to these newer procedures, or your business just relies on CNP transactions, you should place a top priority on protecting yourself from these fraud risks and other online payment security threats.

With amplified security measures integrated into these card-present transaction methods, card-not-present methods slowly became more and more exposed to fraud, while already being vulnerable due to the unverifiable nature of the physically collected card data.

Fighting Against Card-Not-Present Fraud

Your main line of defense against any type of fraud will always be PCI DSS Compliance, simply referred to as PCI Compliance. The terms dictate the standard procedures and security measures needed to protect customer data. These standards are regularly shifting as the industry landscape evolves, so it’s key to continually monitor how your business needs to adjust to these changes.

Ensuring every inch of your team is informed of the proper procedures will prevent any potential long-term mishaps. A retail cashier could have a habit of keying in customer card data instead of taping or swiping, is this indicative of an employee engaging in fraud, or is the location’s POS system malfunctioning? The best way to prevent either of these possibilities is by educating every level of your business on CNP fraud protection.

It can never hurt to invest in additional layers of security outside of these standard procedures. There is some major software out there that can combat card-not-present fraud on multiple different levels.

• 3-D Secure: If you’re familiar with Programs such as Mastercard Secure Code, Verified by Visa, or America Express Safekey, then you know 3-D Secure. It provides an extra layer of security through a securely hosted PIN code stored by the issuing bank. Never shared with you directly, this authentication step is designed to reduce your responsibility, and overall increase security.
• Address Verification System (AVS): This system effectively prevents fraud, by allowing merchants to compare the customer’s address in a CNP transaction against the card owner’s address on file.
• CVV Checks: This requires customers to provide their cards security code — the three or four numbers placed at the back of a card — when completing a transaction.

How to Combat CNP Transactions

Take an assessment of what your business specifically needs in CNP protection. If your business has multiple physical locations, then you should fully educate each retail team on combatting CNP fraud. If your business is mostly run online, match yourself with the perfect payment processor that has the facilities and security features to keep your business protected. Through either diligent monitoring or the integration of PCI-compliant EMV software and hardware, you can effectively combat the vulnerabilities in card-not-present transactions

Contact us at Revitpay if you feel a payment processor is the best choice for your business. Our team is ready and equipped to work through any issues that may arise through card-not-present transactions.