How “Card-Present” Transactions Affects Your Business

As a small business owner, you may have heard the terms “card-present” and “card-not-present” when it comes to payment transactions. Understanding the differences between these two types of transactions and their impact is important for your business. Let’s take a closer look.

Card-Present Transactions

A card-present transaction occurs when a customer physically presents their credit or debit card to make a purchase. This could happen in person, such as at a retail store or restaurant, or at a terminal where a customer inserts or swipes their card. This type of transaction is also known as a “swipe” or “dip” transaction.

Card-Not-Present Transactions

A card-not-present transaction, as the name implies, occurs when the cardholder is not physically present during the transaction. This type of transaction is common in e-commerce or phone order businesses, where a customer provides their card information online or over the phone to complete a purchase. This type of transaction is also known as a “keyed” or “manual” transaction.

Differences between Card-Present and Card-Not-Present Transactions

The main difference between card-present and card-not-present transactions is the level of risk involved. Card-present transactions offer a lower level of risk because the physical presence of the card and the cardholder make it less likely that the transaction is fraudulent. In contrast, card-not-present transactions have a higher risk of fraud because the cardholder’s identity and the validity of the card cannot be physically verified.

As a result, card-not-present transactions often have higher processing fees and may require additional steps to verify the cardholder’s identity, such as address verification or CVV codes. In addition, chargebacks (when a customer disputes a charge) are more common with card-not-present transactions, which can be costly for small businesses.

Why Small Businesses Should Care

Small businesses should care about the differences between card-present and card-not-present transactions because they can have a significant impact on their bottom line. Accepting card payments is convenient for customers, and offering both card-present and card-not-present options can help businesses reach a wider audience. However, processing fees and chargebacks can add up quickly, especially for small businesses with tight profit margins.

To minimize the risk of fraud and chargebacks, small businesses should take steps to verify the identity of cardholders for card-not-present transactions. This could include requiring CVV codes, implementing address verification, or using fraud detection services.

In addition, small businesses should be aware of the processing fees associated with each type of transaction and adjust their pricing accordingly. Some payment processors offer lower fees for card-present transactions, so businesses that primarily accept in-person payments may benefit from choosing a processor that offers lower rates for card-present transactions.

In conclusion, understanding the differences between card-present and card-not-present transactions and their impact on small businesses is important for any business owner who accepts card payments. By taking steps to minimize the risks associated with card-not-present transactions and being aware of processing fees, small businesses can maximize their profits and offer a convenient payment option to their customers.