Differences In Interchange Fees For Online Purchases vs. Swiped or Chip In-Person Purchases

You will notice when handling the interchange fees at your business that these fees will vary surrounding the way someone pays for a product or service. You’ll be subject to a higher interchange fee if you handle an online purchase. Meanwhile, swiped or chipped in-person purchases will cost less for you to process. The risks for handling these transactions will make a difference in the effort.

Every business needs to prepare for what it will spend on interchange fees. These fees will vary by network, but they will especially vary surrounding whether you’re collecting something in-person or online. Let’s look at how these fees differ and what you can expect from each one.

The Online Purchase Process

Online purchases are card-not-present transactions. The effort entails a person entering one’s card data through a secure server. Your shopping cart program will collect the customer’s card data. You can keep the proper info in a secure vault that meets PCI standards.

But you won’t have the physical card on hand. The customer is entering the card number, the CVV or other verification number, and a suitable address.

There’s a potential the person entering the card data is someone other than who really has the card. The risk of fraud is significant, as someone could have acquired the card data and could use it to complete a purchase without the original cardholder’s permission.

Therefore, a card network will charge a higher interchange fee for the CNP transaction. For example, a CNP retail transaction may feature an interchange fee of 1.8% plus 10 cents. But a card-present transaction will have a fee of 1.51% plus 10 cents.

The extra cost covers the potential fraud risk in the transaction. It doesn’t take much for people to commit fraudulent acts while shopping online, so be cautious when looking at what you’re handling here.

Reducing Your Risk

You can reduce the risk of fraud with a CNP transaction by using a few steps. These points may help reduce the interchange fee:

  • An Address Verification Service or AVS can compare the address on the card with the address for the order. It can flag a transaction if there is a discrepancy here.
  • A firewall or fraud detection program can work through your merchant account. Your provider can offer a software platform or firewall setup with controllable parameters that signal potential fraud issues. You could flag transactions based on their values, how often someone buys something, and a person’s physical location.
  • You could also require customers to set up accounts with your website, although that might cause some people to turn away from your store if they aren’t comfortable with the idea.
  • Collect as much info on each transaction as possible. The data can include the prices for each item, the quantities ordered, the shipping data, and even tax info. You could be eligible for a lower rate if you provide enough content on each order.

Your merchant service provider can help you see what you should be doing when protecting your business. Every MSP has different standards for what works, so check around to see what can fit your work plans and that you have a smart solution on hand.

Swiped or Chipped Transactions

Swiped or chipped transactions are card-present transfers. You will directly collect the card from someone who has access to it. Sometimes the card will require a signature, a PIN entry, or another safety feature. But the card-present process is safer to use and therefore produces a lower interchange rate.

A restaurant could spend 1.54% plus 10 cents on an interchange fee when it uses a swiped or chipped card. The same restaurant will spend 1.91% plus 10 cents if it cannot get physical access to the card.

The security features in physical credit cards help reduce the risk of fraud. A magnetic stripe-based credit card includes all the info on a card within that stripe. The stripe includes detailed data that can immediately move through a network. It takes less time for the data to move through, providing a better approach to work.

An EMV chip card is even more protective. A chip-based card features a small setup that scrambles your data and creates a new code each time you use your card. The code is distinct and includes the customer’s information, plus it is harder for outside parties to try and copy.

Are These Differences the Same For All Card Networks?

All card networks will treat online transactions differently from in-person ones. They will all see online transactions are riskier and therefore deserving of higher interchange fees.

Discover can charge as little as 1.56% plus 10 cents for its in-person transactions. But the totals can go up to 1.81% plus 10 cents for online CNP deals. Meanwhile, MasterCard will go from 1.58% plus 10 cents for an in-person payment to 1.89% plus 10 cents for a CNP transaction.

The extra charge for online transactions is a sign of how concerned the card networks are about fraud and chargebacks. They want to keep these from being a problem, but the fact that so many people are buying things online makes it hard to avoid these issues. The higher rates offset the increased risks that these networks are managing.

A Final Note

All credit card networks will charge you more for online payments. While some businesses have to take online acquisitions, those extra charges can be a burden for some entities. The point is true if your business collects hundreds of payments a day. The interchange costs can add up and cut away from your cash flow.

Be aware of how you’re handling your payments and that you recognize what interchange rates you will spend. You will pay more in interchange rates when you take online transactions than if you manage in-person deals. The unique ways how these transactions work will dictate what you will spend on your orders.

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