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Insigt Into Card-Not-Present Charges

This pandemic is creating a new normal in hospitality. Among these, the social distancing guidelines are removing the on-site sit-down seating service. A staple  restaurants had relied on for so long. Thus restaurant owners are having to pivot to other forms of transactions, like delivery and on-line ordering, some for the very first time. This shift away from focusing on sit-down service to other forms is causing an increase in merchant processing fees due to card-not-present transactions.  

A card-not-present transaction (sometimes called a keyed transaction) is a transaction in which a credit card reader is not used in the transaction. Either because the credit card reader is malfunctioning, or more commonly now, the customer’s credit card is not physically at the restaurant to be run through the card reader. By swiping, dipping or tapping the credit card in the card reader the customer is proving that their credit card is in their possession a.k.a “present”, and the traction is authorized.

With the rise of call-in take out, delivery and on-line orders, the customer’s credit card never makes it to the credit card reader. Instead an employee enters, or keys in, the card number when the order is received over the phone. With on-line orders, the customers themselves manually key in the credit card number on the website. Because a call-in, take out, delivery, and online orders are not “present” and happen remotely, they carry a higher risk of fraud.    

It is much easier for a thief to use stolen credit card info online or with a call in order than to show up with the physical credit card. Often when a physical credit card is stolen the owner reports it within the hour. While just stealing the info from a credit card, the owner may go days or even weeks before learning that their card has been compromised. This is why Card-Not-Present has a higher rate for the transaction; there is a higher probability that the transaction is fraudulent, and thus will be charged back. These higher processing costs are set by the credit card brands like Visa, MasterCard, and American Express. The payment processing bank must account for these increased costs when they set rates.  

So how can a restaurant owner prevent fraudulent transactions and paying higher rates? First by requiring a credit card’s CVV number to complete a phone-in or online order. This is one more piece of info that the thief will have to steal to complete a transaction and most businesses doing over the phone or online orders don’t require it. This won’t prevent all fraudulent transactions from taking place but could deter some thieves and send them to the competition. Second, by instituting a Cash Discounting program. This program passes the credit card processing fees down to the customers who choose to pay with a credit card instead of cash. There are a few steps in implementing a Cash Discounting program, to learn more, read Pass the Buck: The Pros and Cons to Cash Discounting.

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