Today, businesses accept payments in different forms. Though digital payments are growing, physical payment methods still have their own user base.
Among those physical methods, card-present transactions are one of the most widely used. They are typically more secure against counterfeit fraud because physical presence allows for stronger authentication. In fact, Visa reported an 80% drop in card-present fraud at chip-enabled merchants in the US.
In this article, we’ll explore what card-present transactions are and how they differ from other transaction types.
Understanding card-present transactions
A card-present transaction is a type of payment that takes place when both the cardholder and the payment card are physically present during the payment. The customer can simply swipe, insert, or tap their card at a POS terminal, and the transaction will either be authorized or declined.
Common examples of card-present transactions
Card-present transactions are so common that they occur in everyday business environments.
- Retail Stores: In supermarkets, customers pay using a debit or credit card at the POS terminal to complete the transaction.
- Restaurants: Customers present their credit or debit card for payment, and the transaction is processed through a POS terminal or handheld payment device.
- Gas Stations: Customers can pay by inserting or tapping their card at the station’s counter POS terminal, where a cashier is present.
- Contactless In-Person Payments: Customers tap contactless cards, Apple Pay, Google Pay, or other digital wallets on an NFC-enabled payment terminal, from coffee shops to underground transit stations.
- In-Store Services: Customers use their card to pay for services in stores such as salon treatments and clinic visits.
Card-Present vs Card-Not-Present Payments
The main difference between CP and CNP transactions lies in the physical presence or absence of the cardholder and their card at the point of sale when the transaction occurs. In multiple ways, this difference impacts areas such as security, transaction costs, and customer experience. These are the main differences that a business should be aware of:
- Fraud and Risk Management: CP transactions are less risky because the EMV chip and PIN can be used to verify the card on-site physically. With remote processing and authentication, CNP transactions are more prone to fraud.
- Customer Experience: Card-present transactions using EMV chips or contactless tap methods automatically reduce the input errors as the card is read directly. On the other hand, CNP transactions are chosen mainly for the remote, hassle-free payment experiences where the physical presence is not expected.
- Sales and Distribution: Card-present transactions are mostly done at retail stores, restaurants, and other service locations. On the other hand, card-not-present transactions mainly refer to payments made through websites and apps, as well as phone and mail orders.
- Transaction Processing Costs: CP transactions generally incur lower processing fees because they pose a lower risk of fraud. On the other hand, CNP transactions are charged with higher fees given their greater exposure to risks of fraud and chargebacks.
- Operational Infrastructure: Businesses that accept CP transactions need POS systems and card readers to operate. It is essential for CNP transactions to have digital infrastructure, which includes payment gateways and fraud verification systems.
- Geographic Reach and Coverage: Since a physical card is required, CP transactions are limited to physical business locations only. In cross-border e-commerce and international remote payments, people mostly rely on CNP transactions, which usually come with extra cross-border or currency conversion fees.
Which is more secure: Card-Present or Card-Not-Present Transactions?
In general, card-present transactions are more secure than card-not-present transactions.
In CP, the payment card is physically present. With card-present payments, the POS terminal can easily confirm that the card is genuine and is actively being used by the cardholder. If needed, additional verifications can be done in person. The chances of fraud and unauthorized transactions are minimal.
In the case of card-not-present transactions, such as payments made online or over the phone, it is not possible to physically verify the identity of the user. At this point, merchants and card networks depend on other security features, such as CVV codes, two-factor authentication, and biometric authentication, to stop fraud attempts.
That said, CP payments are not completely immune to fraud. It is just that card-present transactions are less risky than CNP payments.
Processing fees in card-present transactions
Processing fees are charged to businesses by the payment processor for every card-present transaction. The amount of these charges depends on factors such as the payment processor, type of card, industry, and sales volume. Some of the key elements that determine these charges are:
Interchange Charges
Interchange fees are the charges paid by one bank to another bank whenever a card transaction is made. These fees are determined by card networks and differ depending on the type of debit or credit card used, the transaction value, and the method of payment. Such fees make up the major part of the cost of processing card payments.
Network Charges
Network charges are fees that card networks like Visa and Mastercard impose when vendors use their payment infrastructure for accepting payments. Such fees are used for the development and maintenance of payment systems that authorize, route, and settle payment transactions. Network charges are most often computed as a percentage of the transaction amount.
Processor Markup Fees
Processor markup fees refer to the service charges that the payment processor imposes, essentially to cover the handling of transaction processing and other services. In simple terms, such fees are utilized for payment authorization, customer support, account management, and reporting tools. They can be charged as a flat fee, a percentage, or a combination of both.
FAQs on Card-Present Transactions
Now that we have seen everything about CP transactions, let’s see some of the most common questions about them.
What technologies are used in card-present transactions?
Card-present transactions are mostly carried out using different types of technologies such as EMV chip cards, NFC (contactless) cards, and POS terminals. This also applies to mobile wallets such as Apple Pay and Google Pay, which, through tokenization and the use of NFC, allow payments.
How does EMV technology improve card-present payment security?
EMV creates a unique, one-time cryptographic code for every transaction, so stolen data is worthless for future purchases, and creating a functional counterfeit card is extremely difficult.
Why are card-present transaction fees usually lower than online payment fees?
Card-present transactions pose lower fraud risks, and verification is simpler (physical card + chip cryptogram), so issuers and networks typically impose lower interchange and risk-based fees than for card-not-present transactions.
Can a card-present transaction be declined?
Yes, similar to every other payment method, a card-present transaction may be declined due to insufficient funds, an expired card, incorrect PIN entry, or suspected fraudulent activity. There are also temporary network issues that are beyond the customer’s or business’s control. For failed payments, the concerned bank will provide proper customer support.
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