The terms “card, not present” and “card present” are apparently very uncomplicated terms in themselves. In a nutshell, we consider a transaction in which the card was not present a CNP transaction and one in which a card was present a CP transaction. But there is more to this than just having the card on hand while the transaction occurs. For a payment that falls in the category of a “card present” transaction, electronic card data needs to be captured using the magnetic stripe of a card, using an EMV chip card or touching an NFC digital wallet with stored card information. The NFC method works with smartphones using applications like Apple pay. Types of “card present” transactions are:
- Credit card machines on shop counters
- Card reading devices in POS systems
- Terminals enabled for contactless digital wallet payments
- Card reading devices attached to tablets and mobile phones
For “card, not present” or CNP transactions, the magnetic stripe, EMV chip or even a mobile wallet is not tapped against a physical terminal or POS. Therefore any transaction that does not include the electronic and immediate transfer of card data to the retailer is considered a “card not present” transaction. A transaction can be regarded as CNP even if the customer has the card on hand. In this case, if the retailer takes the card and manually inputs the credentials of the card in their computer or cellphone, the transaction would be a “card not present” payment. This is because the card did not come in contact with the machine to allow the electronic transfer of card information. Types of “card not present” transactions are:
- eCommerce or online shopping
- Automatic subscription or billing
- Orders through phone
- Payments on websites
- Online invoices
Charges of Processing
Your chosen method of transactions, “card present” versus “card not present,” also impacts the processing fees that you will be paying for the transaction. CP transactions generally have a lower cost that the merchant has to pay compared to CNP transactions. The more transactions a merchant does each day, the more fees they will have to pay compared to CP transactions. In a cost-price competitive market, making profits can be very important. Therefore, it becomes a strong motivation to keep CP transactions. The potential savings are much higher with CP transactions and as a result, so are the profit margins.
However, the higher rate of CNP transactions does come with a little edge. The tradeoff of “card not present” transactions compared to “card present” ones is a much more convenient way to pay, the most significant one being to pay at their ease of time, from a smartphone, tablet or a computer that may be present at their homes even. As customers would not even have to visit your store to make a transaction or even make a purchase, this can boost a firm’s sales significantly. Furthermore, this also gives an added security sense to the clients who can enter that information in a secure portal. The store owner doesn’t have to deal with the sensitive cardholder information at all. It’s a win-win from that perspective.
There is, however, a way to further reduce the fees that comes along with CNP transactions. Using the address verification service (AVS), the business can note the cardholder’s address the first time they make a transaction. Then each time the customer makes a CNP transaction at your business or firm, the processor can verify their pre-noted address with the information in their bank. This can account for more secure transactions and result in lesser fees for that transaction. Also, different payment processors choose to charge differently for transactions. Suppose you already know that the majority of your transactions are going to be CNP ones. In that case, you can research and select a payment processor that has lower rates for “card not present” transactions.
Susceptibility to Fraud
When purchasing a phone, there is always a risk of the transaction information being breached and a risk of being misused. Historically, using someone’s credit card number to make a fraudulent purchase was very easy. Therefore this has led people and merchants to believe that “card present” transactions are safer than “card not present” transactions. In CP transactions, however, the card always remains in the sight of the customer. There is no verbal exchange of cardholder information, and having someone attain sensitive information about the card can be much more difficult. Using a CP method, the customer needs to swipe the magnetic strip of their card, need an EMV chip and signature or an EMV chip and their secret PIN to conduct the transaction. This allows for the verification of the cardholder’s authenticity and provides a more robust protection to the customers, creating trust and credibility.
But there have been significant investments in improving CNP transaction security as well. One such method is to ask for additional information such as the CVV code that only someone with the card present with them would know. By partnering up with a payment processor that uses advanced technology to minimize fraud risk, “card not present” transactions can become much more comfortable and safer to process.
Furthermore, an EMV liability shift that was passed in October 2015 has dictated that with certain types of transactions, the payment processor is liable for fraud. For the others, the merchant services provider should be held responsible. If a business has an EMV enabled card or chip reader, the merchant’s payment processor or bank will be held liable in the case of fraud. But if a chip reader has not been used in a transaction, the merchant will be held liable for the fraud.
Which one is better?
Both of these transaction methods have their pros and cons. Ultimately, it depends on the type of business or firm that you are running that would allow for the best use of every kind of transaction. In eCommerce environments, where the customer isn’t usually present in a physical store to make a purchase, CNP payments might be the only way to go. Also taking recurring fees for a subscription can be much more convenient in CNP transactions for both the customer and the business.
In cases where the merchant can conduct the transaction in person, such as in a restaurant or at some service, the merchant should prefer CP transactions. This is because they are deemed more secure as both the cardholder and the card are physically present, verifying the purchase’s authenticity can be done confidently.