What is a card not present transaction? 

March 13, 2023 | Merchants | Dustin

A card not present transaction is when there is no physical card being used at the time of purchase. The most common situation for this to occur would be through online purchasing. E-commerce stores operate entirely via card not present transactions. Their customers make purchases by sharing their information on a website rather than having it read by a machine.

Why are card not present fees higher than card present fees?

Payment processing fees are determined by factors such as price and the level of authentication associated with the payment type. In general, card present transactions have a higher level of security. With the card being available at the time of purchase, a vendor can verify the signature of a person making a payment. Additionally, the name of the individual is present on the card and this can be verified by asking for a second form of ID.

What’s the distinction between card not present transactions and card present transactions?

Card not present transactions are considered less secure. A person purchasing a product through an online store would only need card details to complete a transaction. These card details could be acquired by some other means, and the identity of the person making the purchase is not certain.

These types of fraud risks are hedged by banks and intermediaries who understand the level of risk associated with these different types of transactions. Moreover, there are similar types of fraud or inefficiencies in the purchasing process such as chargebacks or returns. These concerns can happen to any company but are more common in specific industries. Banks are well aware of which industries these are, and have categorized them as “high risk”.

What’s the most secure form of payment?

Debit transactions are considered the most secure in the card present world from a merchant’s standpoint. This is because they offer a two-way form of authentication. A debit transaction draws money from an available account and a pin code must be entered to verify the purchaser’s identity.

The Three-Digit Security Code

The security code on the back of your debit card serves an interesting purpose. These codes are not stored in databases. If you use your debit card from a company that wanted to save your information (such as Google Pay), your full debit card records would be safe because this code would be omitted.

What Are Debit Card Fees?

The Federal Reserve reported, “average interchange fee per covered transaction was slightly lower in 2018 for transactions processed over dual-message networks than for those processed over single-message networks: $0.22 and $0.24, respectively.”

Merchants pay a percentage of the total cost of the transaction, however, the interchange fee per purchase may add up quickly especially if the merchant is selling lower-cost items.

How Can Retail Stores Charge Smarter?

Online Credit transactions will leave you paying the most fees in general, so your best option is to charge pin debit whenever possible. Surcharging is a workaround for retailers to charge the customer a fee for using their credit card. This fee can allow a merchant to pass on the expenses of the transaction to the purchaser. Moreover, retailers can offer incentives for cash purchases. This is known as a cash discount program and has been used by companies like gas stations to avoid paying fees on the many transactions they receive.