Payment Pulse – Ep. 46

Understand the difference between card-present and card-not-present payments, including how each can affect fraud risk, processing costs, and convenience.

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Episode Transcript

Noelle: All right. Welcome back to The Payment Pulse. I’m Noelle, and joining me again is Joe, our resident payments expert. Today we’re talking about two terms business owners may have seen on a merchant statement, card present and card not present transactions.

At first glance, this seems pretty straightforward. Either the card is there or it isn’t. But there’s actually a little more to it than that, right?

Joe: There is, and more importantly, the difference can affect things like how a transaction is processed, the level of fraud risk involved, and potentially how much it costs the business to accept that payment.

Noelle: It’s definitely something worth understanding. So let’s start with the basics. What exactly is a card-present transaction?

Joe: A card-present transaction generally happens when the customer and their payment method are physically present at the time of the transaction, and the payment credentials are electronically read by the payment device. Think about walking into a coffee shop and tapping your card, inserting the chip at a retail store, or using a mobile wallet like Apple Pay at a restaurant.

Those are common examples of card-present transactions.

Noelle: So tapping a phone or a smartwatch can still be considered card present even though there isn’t a physical card involved?

Joe: Exactly. The term card present can be a little confusing because the actual plastic card doesn’t necessarily need to be there. If you’re using a supported contactless mobile wallet in person, the payment credentials are being securely transmitted to the payment device. That’s generally treated as a card-present transaction.

So a better way to think about it is that the payment credentials are being securely read at the point of sale rather than someone manually providing their card information.

Noelle: Okay, so then what’s considered a card not present transaction?

Joe: Card not present or C-N-P generally refers to transactions where the physical card or payment credential isn’t electronically read by the merchant’s payment device at the point of sale. The most obvious example is an online purchase, but there are plenty of others. If a customer calls a business and provides their card information over the phone, card not present.

If a business uses a virtual terminal to manually enter a customer’s card information, that’s typically not card not present. payments made remotely through things like invoices or payments, payment links, are generally card not present as well.

Noelle: So card not present doesn’t just mean online purchase. It can cover a lot of different ways customers pay remotely.

Joe: Yeah, not at all. A plumber could take a payment over the phone. A doctor’s office could send a patient a payment link. A landscaper could email an invoice that allows a customer to pay online. Those businesses may do most of their work face-to-face, but those particular transactions are still happening remotely.

Noelle: So now that we know what the two terms mean, why should a business owner care which category a transaction falls into?

Joe: One of the biggest reasons is risk. When a customer is standing in front of you and tapping or inserting their payment method, there are security features built into that transaction that help verify the payment credential. With a card-not-present transaction, the businesses don’t have that same interaction with the physical payment method. That can make it more difficult to determine whether the person entering the card information is actually authorized to use it, which is why we tend to hear more about fraud risk with online or remote payments. That doesn’t mean card-not-present transactions aren’t secure. Millions of them happen safely every day, of course.

It just means that the risk profile is different, which is why the businesses accepting remote payments need to use secure payment technology and follow appropriate practices.

Noelle: Cost is another important consideration and probably one business owners are especially interested in. How can the way a payment is accepted affect what it costs to process?

Joe: It certainly can. Card not present transactions can carry higher processing costs than certain card present transactions because there can be additional risk associated with accepting a payment when the cardholder and payment credential aren’t physically present. But it’s important to remember that there are a lot of variables involved in payment processing. The card type, card brand, transaction type, how the payment is entered, and the merchant’s pricing structure can all affect the final cost.

Noelle: So we shouldn’t simplify it down to card present is always this price and card present is always that price.

Joe: Exactly. But as a general concept, understanding that the way you accept a payment can affect the cost is important.

Noelle: So let’s talk about something I think could trip people up. Let’s say a customer is standing right in front of me, but instead of tapping or inserting their card, I type the card number into my payment system. The card is technically present. Is that a card-present transaction?

Joe: That’s a great example of why the terminology can be confusing. Simply having the physical card in front of you doesn’t necessarily make the the transaction card present. What matters is how the payment credentials are captured and how the transaction is processed. If you’re manually entering the card information instead of having the payment credentials electronically read through an approved method, that transaction may be treated as card not present or manually entered for processing purposes, even if the physical card is right there in front of you.

Noelle: So does all of this mean businesses should avoid card-not-present transactions whenever possible?

Joe: Oh, no, definitely not. For a lot of businesses, card-not-present, payments are essential. Think about e-commerce. Obviously, customers need to be able to pay remotely, but the same goes for many service businesses. Sending a secure payment link or allowing a customer to pay an invoice online can be much more convenient than requiring that customer to physically come into the business.

Noelle: Yeah, and that connects nicely to something we’ve talked about before in the Payment Pulse. Customers increasingly are expecting businesses to give them convenient ways to pay.

Joe: That’s right. The goal isn’t to avoid card-not-present payments, it’s to use a payment method that makes sense for the situation and understand the differences. If the customer is standing in front of you with their card using a secure card present method like tap or chip, it’s generally preferable to manually typing in that credit card. If the customer is remote, use technology that actually is designed for remote payments, such as a secure online checkout, virtual terminal, invoice or payment link.

Noelle: So if a business accepts a lot of card-not-present payments, what are some things they can do to help reduce that risk?

Joe: First, use secure payment tools designed for card-not-present transactions rather than creating your own workarounds. For example, you don’t want customers sending their full card information through regular email or text messages just because they’re not standing in front of you. Depending on the payment method, businesses may also have access to fraud prevention tools and additional ways of verifying transaction information. It’s also important to have clear refund policies, keep good transaction details, and make sure customers recognize your business name on their card statement.

Noelle: That last one’s interesting because it does connect back to chargebacks, too.

Joe: That’s right. Sometimes a customer disputes a transaction simply because they don’t recognize it. Good records, clear communication, accurate billing descriptors, and secure payment practices can all help businesses manage some of that risk.

Noelle: When we talk about these different ways of accepting payments, it’s important to point out that businesses don’t necessarily fall into one category or the other. There’s many businesses accept both card present and card not present payments.

Joe: Absolutely. Take for example, a restaurant. Customers may tap or insert their cards when dining in, but that same restaurant might also accept online orders. Or think about a retail store. Those customers pay at the counter while others purchase through the store’s website. A service business might accept a card in person after completing a job one day and send another customer a payment link the next. It’s really about understanding the different payment situations within your business, and that’s becoming more important as businesses give customers more ways to pay.

Noelle: So to wrap things up, if a business owner takes away just three things from our conversation today, what should that be? Or what should they be?

Joe: Yeah. First, card present and card not present describe how payment credentials are captured and transactions are processed. It’s not simply about whether you can physically see the customer’s card. Second, card not present transactions can come with different fraud risks and processing costs, so it’s important for businesses to understand how their payments are being accepted. And third, one isn’t necessarily better than the other. Customers may want convenient ways to pay, whether they’re standing at your counter, shopping online, paying an invoice, or making a purchase from somewhere else. For most businesses, the goal is really to offer the payment options that make sense for their customers while using secure technology designed for each type of transaction.

Noelle: Great. I think those are great takeaways, Joe. Thanks for breaking that down for us.

Joe: Anytime.

Noelle: And thanks everyone for listening. We’ll see you next time on the Payment Pulse.

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