Card Present (CP) vs Card Not Present (CNP) transactions

What is a “card present” transaction?

This financial term may seem like a no-brainer, however with the rise of alternative payment channels this warrants a more in-depth definition. Card present transactions occur when the customer is physically present with the payment machinery at the time of purchase and if electronic data is captured at the time of the sale. This is more than just the physical presence of the credit card. This includes swiping the magnetic strip of the card, inserting the EMV chip, or tapping a mobile device with card loaded in a contactless digital wallet, like Apple Pay. All other payment methods are consisted as “card-not-present" transactions.

If the credit card information is manually keyed into the credit card machine, this does not count as a Card Present transaction, even if the card is physically present at the time. To quality as a Card Present Transaction, the merchant must capture electronic data stored in the card. This is the most common credit card transaction type and is most often seen at retail stores with physical locations. Card present transactions can be made with credit cards, bank cards or Mobile wallets such as Apple Pay, Android Pay and Samsung Pay.

What is a “card not present” transaction?

Card not present transactions occur when a customer does not provide a bankcard at the time of purchase. This type of transaction is a common solution for making purchases when the merchant and customer are in two different places, such as with online shopping, recurring or subscription billing, electronic invoicing, orders taken over the phone, payment apps on devices that don’t require a card reader.

In this case the customer may complete a purchase by providing the credit card number, expiration date and security code or other identifying information. CNP transactions happen most often online during ecommerce purchases. Telephone orders are also a common means of CNP transaction. Similar to processing credit cards in person, businesses have fees to pay for CNP transactions. The fees related to make up the rate in which you are charged are considered interchange and assessment fees.

CNP transactions have a high rate of credit card fraud because of the difficulty for a merchant to verify that the cardholder is indeed authorizing the purchase. A chargeback then occurs when a fraudulent transaction is report for a CNP transaction where the acquiring bank hosting the merchant account received the money from the fraudulent transaction making restitution to the cardholder.

Why this matters:

The input method affects your costs for processing and can affect your chargeback liability. There are three components for any credit card transaction: interchange, assessments, and markup. Interchange accounts for the bulk of a transaction’s cost to process, but there are hundreds of interchange categories. Furthermore, which category a transaction falls under varies depending on several factors. One of those factors is how you enter the card. Generally, interchange fees are higher for card not present transactions because the chance of fraud and chargebacks is higher without the card present. Assessment fees differ from interchange fees in that they’re charged based on total monthly sales opposed to individual transactions. Assessment fees are typically lower than interchange fees. However, the amount you pay in assessment fees varies by the network and depends on things like whether the cards used were credit or debit, transaction volume, and whether foreign transactions were processed. Markup fees are the payments you make to your specific credit card payment processor. Some of these fees are charges on a per-transaction-basis, just like interchange and assessment fees. It is recommended that those users take their time to understand the various benefits you may encounter with different processors.