Credit card not present transactions are done around the world every day. As more consumers shop online, by phone or even by mail, they pay for their purchases without being physically present at the merchant’s location. This article will explain what card not present transactions are and how they relate to your credit card processing transactions.
What is a Card Not Present transaction?
When a small business owner speaks of a Credit Card Not Present or a Card Not Present (CNP) transaction, they’re referring to a situation in which the credit card is not physically present at the location. While the card may not physically be present, the information that is connected to the account can still be used to process the transaction.
For example, the cardholder’s name, address and other information such as the date of expiration of the card, can all be used to process the transaction. This makes it possible for shoppers to purchase goods and services from basically any location, once they can give the merchant the information that’s required to process the transaction.
Credit Card Not Present also indicates that the owner of the credit card is also not likely to be present at the same location as the merchant. It’s not a requirement that they’ must be present to shop, once the business makes it possible to pay for their purchases by phone or via another remote method. A pop up shop or a vendors at a community fair can facilitate card not present transactions, if they allow customers to phone in their order and pay for their products over the phone.
Examples of Credit Card Not Present Transactions
Small businesses receive payment from their customers via a wide range of Card Not Present transactions every day. By facilitating CNP payments, they can do business even if a customer is not right in front of them. Examples of CNP transactions include:
- Online transactions
- Phone orders
- Recurring payments
- Invoices that are paid online
Some small businesses do several online transactions every day, where customers may pay for a product or service without being present. If you own a shoe store that sells products online or have a woodworking hobby shop that displays patio sets and other items of furniture online, you probably collect most of your revenue via Credit Card Not present transactions. You’ll be asked to enter the card number that is embossed on the front of the card, along with other details, in order to pay for your purchase.
Phone orders are also usually paid for without the credit card being present. The shoppers will give a customer service representative the details that are required to authenticate the purchase, such as their name, their address and other details that only the cardholder should know. The business’ agent on the phone with them, inputs this data into the system.
Recurring payments almost always occur without the cardholder or the card being in the business place. They may have to enter their information once via the Internet and give permission for their card details to be stored securely. After that, the system will automatically ensure that all other payments are made using the data, at set times each month.
What are the risks associated with processing credit cards remotely?
CNP transactions require less hard evidence than those done via swiping a card. In a store, you could be asked to present a photo ID, which could be matched to you when you’re present.As a merchant, you can verify transactions when the card is present by comparing the cardholder’s signature with that on the card.
You can require a pIn to ensure that the card is not being misused. You can also use a wide range of other methods to confirm that the transaction is not fraudulent. With CNP transactions, merchants must key in information to the gateway on their own and this can also lead to delays, since they may erroneously enter the wrong details and have to do the entry again. This can lead to a little more irritation on the part of the agent who is facilitating the CNP transaction.
Chargeback fraud, which is sometimes referred to as friendly fraud, is one of the risks of remote credit card transactions. Chargeback fraud occurs when a customer calls and requests a product from a merchant but then calls the bank to report a problem with the transaction. This type of fraud costs merchants millions of dollars each year.
There are cases where consumers commit chargeback fraud unintentionally. Cardholders should always contact the merchant before they call the bank but some cardholders do not know that. Some also think a chargeback is the same as a return but it is not.
How much does it cost to process credit cards remotely?
Your business will have to pay to process Credit Card Not Present transactions, just as you would with regular transactions. The fees consist of the same type of components, such as the interchange fees, payment provider’s markup and assessment fees charged by Visa and other card brands. The major difference in terms of fees, is that the interchange component is much higher for CNP transactions, than for those where the cardholder and card are present.
The interchange fees for remote transactions are higher because the risk is greater. There is a higher risk of chargebacks and a higher risk of fraud. The increase in interchange fees results in higher processing fees, which are passed on to you and other merchants. As a store owner, you’ll pay a little more for your CNP transactions han for those conducted with the cardholder present.
According to the Nilson report, in 2018, CNP transactions accounted for 54% of all losses to fraud across the world. As you conduct business online or over the phone, there is a risk than malicious individuals could use someone else’s card details to make a purchase. Some shoppers are very wary of CNP transactions however options such as invoices, allow them to pay remotely without sharing their credit card information over the phone.