In the world of payment processing, two key terms frequently arise: card-present (CP) and card-not-present (CNP). These terms describe the presence or absence of the physical credit card during a transaction. Understanding the difference between CP and CNP transactions is essential for merchants in order to navigate the various payment methods available today. Let’s explore the characteristics, implications, fees, and security considerations associated with each type.
In a nutshell, there is much more fraud in card-not-present transactions. This results in higher payment processing fees, interchange fees, and likely chargebacks for merchants. The fraud rate for in-person card-present transactions is estimated to be around 0.06% of the transaction value. Card-not-present fraud rates are estimated at around 0.93% of the transaction value, which is significantly higher than card-present fraud rates. That’s around 90% higher.
Card-present (CP) transactions
Card-present transactions occur when the customer physically presents their payment card to the merchant at the point of sale (POS). This typically involves swiping, inserting, or tapping the card into a card reader or terminal. CP transactions are commonly conducted in brick-and-mortar stores, where customers make purchases in person.
Characteristics of CP Transactions:
Physical Verification: In a CP transaction, the merchant has the opportunity to visually inspect the payment card, verify its authenticity, and compare the signature or photo identification with the cardholder.
Lower Fraud Risk: The presence of the physical card reduces the risk of fraudulent activity. It is difficult for fraudsters to replicate or use stolen cards in CP transactions without being detected.
Signature or PIN Verification: CP transactions often require the cardholder’s signature on a paper receipt or the input of a personal identification number (PIN) for verification purposes.
Card-non-present (CNP) transactions
Card-not-present transactions occur when the payment card is not physically presented during the transaction. Instead, the cardholder’s payment information is manually entered or provided through other means such as online, over the phone, or via mail order.
Characteristics of CNP Transactions:
Remote Authorization: CNP transactions take place remotely, with the customer providing their card details electronically or verbally to the merchant.
Higher Fraud Risk: CNP transactions are associated with a higher risk of fraud due to the absence of physical card verification. Fraudsters can use stolen card information obtained through various means, making it crucial for merchants to implement robust security measures.
Additional Verification Methods: To mitigate the increased fraud risk, CNP transactions often require additional verification steps, such as the card verification value (CVV) code, address verification, or the implementation of 3D Secure protocols for online transactions.
Fees and interchange rates for card present vs card not present transactions
In payment processing, the interchange fee is the fee charged by the cardholder’s bank (issuing bank) to the merchant’s bank (acquiring bank) for processing a payment transaction. The interchange fee varies depending on several factors, including the type of transaction, the type of card used, and the associated risk. When comparing card present (CP) and card not present (CNP) transactions, there are differences in interchange fees due to the varying risk levels associated with each type.
CP transactions typically have lower interchange fees compared to CNP transactions. This is because CP transactions involve the physical presence of the payment card, providing an additional layer of verification and reducing the risk of fraud. The lower risk is reflected in the lower interchange fees.
In CP transactions, the liability for fraudulent activities is often shifted to the issuing bank if the transaction meets certain conditions (e.g., a fraudulent CP transaction where the cardholder’s PIN was used). This reduced fraud liability for merchants is another factor contributing to lower interchange fees.
CNP transactions generally have higher interchange fees compared to CP transactions. This is due to the increased risk of fraud associated with CNP transactions. Without the physical presence of the card, it is more challenging to verify the authenticity of the transaction, making CNP transactions a higher risk for both merchants and issuing banks. The higher interchange fees help compensate for this elevated risk.
In CNP transactions, the liability for fraudulent activities often falls on the merchant if they cannot demonstrate that they followed proper security protocols (e.g. verifying CVV code, and implementing 3D Secure). The higher risk and potential liability increase the interchange fees for CNP transactions.
Interchange rates for credit card CP transactions can vary more widely, typically ranging from 1.50% to 2.50% of the transaction amount, with a flat fee per transaction. CNP transactions generally have higher interchange rates compared to CP transactions due to the increased risk. The rates can range from 1.80% to 3.50% of the transaction amount, with a flat fee per transaction.
You can review in more detail the interchange rates in Canada and interchange rates in the USA.
Examples of card-present vs card-not-present
There are many different payment methods out there from credit card machines to eCommerce. Below is a list of the common payment methods and whether they are card-present or card-not-present.
| Payment Method | Transaction Type |
|---|---|
Credit Card Machine | Card-Present |
Tap or Apple Pay | Card-Present |
Virtual Terminal | Card-Not-Present |
Online Payments and eCommerce | Card-Not-Present |
Hosted Payment Page | Card-Not-Present |
