The Anatomy of a Payment 5: Card Present vs. Card Not Present

In this Episode we are looking at two very similar payments. Both were made with Visa credit cards issued in the US, both happen to be signature preferred cards (a rewards card Visa offers), and both were charged around $62. There is one key difference however: one was a 'Card Present' and the other a 'Card Not Present' payment.

This has nothing to do with whether the goods or services were bought as a present, though it would be nice if a payment network offered lower fees for our Christmas gifts, wouldn’t it? That is, assuming merchants would in turn lower their prices for us consumers, but that’s a whole different topic and we’re getting off track here ??.

No, as you might have suspected, the real difference lies in whether a card was physically present when the payment was processed or not. Typically ‘Card Present’ (CP) payments are those processed in person, at a shop for example. The key here is that the card was used to make the payment, by tapping, inserting or swiping (in case anyone still does that). ‘Card Not Present’ (CNP) payments on the other hand are mostly online payments, but also those made over the phone or via mail order (in our case it’s definitely an online payment, so we might refer to it as online going forward). So, for all platforms trying to get their omni-channel payments platform right, this one’s for you.

?? Where does that leave wallets like ApplePay or GooglePay, you ask? That’s actually quite straightforward: If the payment is made in a shop = Card Present. If made online, you guessed it = Card Not Present.

What are some examples of platforms that process both online (CNP) and in person payments (CP)?

• An event management platform that allows event managers to sell tickets online and also on site (eg. at the entrance of a venue), like Resident Advisor or Eventbrite
• A hotel management platform that takes online reservations and also provides POS terminals to hotels for in person payments, such as Cloudbeds
• A beauty and wellness booking platform that allows online reservations as well as in-store purchases, like Booksy and GlossGenius

So, what's the difference in fees?

CNP payments are said to carry higher fraud risk, because fraudsters are able to use stolen card details to purchase things online. Because of this increased risk, merchants, through their PSPs, need to implement more stringent rules for payments acceptance, such as 3DS.

The physical verification element of Card Present payments provides an extra level of security that CNP payments can’t match. And as you would expect, higher risk means higher payment fees.

So, let’s take a look at our payments and see how that is reflected:

You can see that though the Card Not Present payment amount was lower than that of the Card Present payment, its fees were higher! This was mostly due to the slightly higher scheme fees and the much higher interchange fee charged on the CNP payment.

Overall, these fees seem relatively low in comparison to the full payment amount:

• CP: $1.58957 of $62.39 = 2.5%
• CNP: $1.82638 of $61.64 = 2.96%

But where platforms and marketplaces are concerned, these differences matter. Razor thin margins are very common in this business model. So let’s take a look at what the platform in this case charged both sellers for the payments and their resulting margins. Let’s kick it off with the Card Present payment:

We can see here that the platform applied a fee of 2.69% to this payment, resulting in a very thin net revenue of $0.09. Again, this is a platform payment, thin margins are common and if managed proactively should result in positive platform-seller relationships, so there isn’t necessarily an issue here.

Now, let’s check out the CNP, the online payment:

Negative margin! Oh no. We can see quite quickly that the issue lies with the application of the platform fee, which goes at the same rate of 2.69% as the CP, the in person payment. In this case the platform fee did not cover the payment processing fees adequately and resulted in negative net revenue. It seems like the platform applies a flat fee to all their payments.

This can be a dangerous gamble, because as we can see here, where fraud risk varies, so do payment costs. Platforms can avoid this gamble, if they proactively set their platform fees in relation to the payment costs that they’ll likely incur. In the case of CP vs. CNP payments, you can always assume that a Card Present payment costs less than a Card Not Present payment.

But if you want to dive deeper into your own payments and uncover your true payment costs and margins, reach out to us. We’re here to make sense of this complexity and put you in control of your margins.

#payments #omnichannel #fees #margins #platform #marketplace