The number of consumers shopping and paying online has increased exponentially in the past 10-15 years. This has resulted in a huge increase in card-not-present transactions. These types of transactions have different implications than card present transactions. Keep reading to learn what these transactions are, how they’re processed, and the potential risks involved.
What is a Card Not Present Transaction?
Card Not Present Transactions Table of Contents
Simply put, a card-not-present transaction happens when the card is not physically presented for payment. These transactions involve credit cards that the merchant never sees or touches. They can include online purchases, telephone purchases, and certain types of in-store purchases. All these types of transactions have these three things in common:- A card was not swiped
- An EMV chip was not inserted to a card terminal
- A payment was not collected using a contactless/NFC function
Types of Card Not Present Transactions
Card not present transactions used to be limited to telephone, mail, and online purchases. However, with new technologies such as digital wallets and virtual payments, the landscape for card not present transactions has drastically changed. Here is a breakdown of some different types of card not present transactions.
- eCommerce Transactions
- These occur when a customer makes a purchase online using a credit or debit card.
- Mail Orders
- These occur when a customer makes a purchase by mail using a credit or debit card.
- Telephone Orders
- These occur when a customer makes a purchase over the phone using a credit or debit card.
- Recurring or Subscription Payments
- These are payments that are charged to a customer’s card on a regular basis, such as monthly subscription fees. They are sometimes called card on file transactions.
- Mobile Payments
- These are payments made using a mobile device, such as a smartphone, to make a purchase. This can include in-app purchases.
- Virtual Terminal Transactions
- These are payments made through a web-based interface that allows a merchant to manually enter a customer’s card information to process a transaction.
- Digital Wallet Transactions
- These are payments made through digital wallets like Apple Pay, Google Wallet, etc.
How to Process a Card Not Present Transaction
Successfully processing a card not present transaction boils down to your ability to collect adequate information. Whether you are processing these transactions online, via phone, or in-person, you need to collect the following pieces of information about the cardholder:
- Phone Number
- Email Address
- Billing Address
- Shipping Address
You will also need to collect specific information about the card being used. This information includes, but is not limited to:
- The cardholder’s name as it appears on the card
- Expiration date
- Credit card number
- CVV/CVC
- Billing zip code
Requiring these data points during the transaction process adds an extra layer of protection for you and your customers. It can also reduce declined transactions, assuming you entered the information correctly without typos.
If transactions are being processed online for your customers, be sure your system sends an error message to inform them if they entered information incorrectly. If you’re taking orders over the phone, it’s helpful to read the information back to the cardholder before completing the transaction. This can also help reduce declined transactions.
Aside from data collection, you’ll need to follow the protocols provided by your payment processor. You may have to enter the card information into your payment terminal manually. In the case of digital wallets and online purchases, you need to make sure your system is set up to ask for the appropriate data.
High-Risk Card Not Present Transactions
If you already process credit and debit cards in your business, you should start by speaking to your payment processor. Some processors provide merchant services only for card present transactions. In other cases, your processor may provide the card not present processing service but require you to have a high-risk merchant account to do so. More information on high-risk merchant classification can be found below.
High-risk processing is a service offered to merchants who operate a business that is considered more
susceptible to fraud. Businesses like these cause the merchant account provider to take on more risk and are often charged more in processing fees as a result. High-risk businesses include industries like online gaming, health supplements, adult entertainment, CBD products, merchants with high-average tickets, and businesses with subscription services.
What are the Interchange Rates for Card Not Present Transactions?
Interchange rates for card-not-present transactions are typically higher than those for card present transactions. This is because card-not-present transactions are considered to have a higher level of risk. The exact interchange rate for a card not present transaction will depend on various factors, including the type of card used (such as a credit or debit card), the card issuer, and the merchant’s level of risk.
The payment processor and acquiring bank may also charge additional fees for card not present transactions. It is typically best to consult with your payment processor or acquiring bank to get an accurate estimate of the interchange rate for your specific transactions.
What is Card Not Present Fraud?
Fraud is a major concern for any business that processes card payments. You need to have some protocols to protect your business, your customers, and the card data you are processing. With card not present transactions, the risk is even greater. Card not present fraud comes in a variety of forms. Online purchases can be made by cyber criminals who have illegally acquired credit card data from innocent cardholders. They can also purchase with their credit card, receive the merchandise, and then file a chargeback with their bank.
In this case, the bank would notify the merchant of the chargeback and investigate the case. If the merchant doesn’t keep excellent records about each transaction, there is a good chance the chargeback will be honored, and the money will be deducted from the merchant’s account and returned to the cardholder. Card-not-present fraud can also occur when a criminal uses a stolen or counterfeit credit or debit card to purchase online, over the phone, or by mail order. Since the card is not physically present, the merchant cannot verify the cardholder’s identity using the card’s security features, such as magnetic stripe, chip, or signature.
To protect against card not present fraud, merchants should use additional security measures such as Address Verification System (AVS) and Card Verification Value (CVV) to verify the cardholder’s identity. Merchants should also consider fraud detection software to identify and flag suspicious transactions.
