How online payment processing differs from in-store payment processing

Online (“card not present”) payment processing is actually quite a bit different than in-store (“card present”) payment processing.

Most notably, online processing is more expensive than in-store processing, for several important reasons.

The primary reason is credit card fraud – it’s a lot easier for nefarious characters to use stolen credit card numbers online than it is to use a stolen credit card in a physical location. The reasons for this are fairly obvious – if your credit card happens to get lost or stolen, then you’re probably pretty aware of this (or soon will be). And when you figure out that your card is stolen, the first thing you do is cancel it. As a result, credit card issuers can be fairly certain that a physical credit card swipe is coming from the owner of the card.

This not the case with online transactions since you don’t actually need the card – you just need the numbers, expiration, etc. As a result, there’s a much higher likelihood of credit card fraud being committed when a card is being used online. For this reason alone, credit card issuers (banks like Chase, Bank of America, etc.) and the card networks (Visa, Mastercard, Discover, and American Express) charge higher fees for online transactions. 

But online transactions are more expensive for other reasons as well, most of which are related to preventing credit card fraud. In order to prevent fraud, payment processors allow you to verify information other than just the credit card number and expiration date when a credit card is submitted online (submitting your credit card number and expiration date online is equivalent to a credit card swipe in a physical location).

The two ways to verify credit cards online are called AVS (Address Verification System) and CVV (Card Verification Value).

  • AVS is used to verify that the customer’s billing address matches the address on file with the card issuing bank. When a checkout page asks you to submit your address or even just your zip code, AVS is being used to verify your address. If it matches, the transaction can go through.
  • The CVV is the 3 or 4 digit number on the back of your card, and is another piece of information that can be verified with the card issuing bank. The assumption is that if you know this value, you have the credit card in hand and are looking at the back of it.

Payment processors charge fees for using these services, neither of which are needed in a physical location (i.e. your cashiers don’t ask your customers for their address or CVV when they swipe a card), so this is another reason that online transactions are more expensive than offline transactions.

The last reason has to do with providing a convenience to your customers that keeps them coming back to order from you again and again – saving their credit cards to their Brandibble accounts so they don’t have to re-enter them every time. As we all know, entering your credit card info online is a pain, especially on a smartphone. Allowing your customers to save their credit cards to their Brandibble accounts allows them to avoid this hassle, reducing the friction of placing an order online (and anything that reduces friction leads to more orders).

And you guessed it – credit card processors charge additional fees for saving cards online, yet another reason that online transactions are more expensive than in-store transactions.

So that makes 4 reasons that payment processing is more expensive online than it is in-store:

  1. Card issuing banks and the card networks charge higher fees for online transactions.
  2. Payent processors charge additional fees to use the AVS service to verify a customer’s address.
  3. Payment processors charge additional fees to use the CVV service to verify the 3 or 4 digit number on the back of the customer’s credit card.
  4. Payment processors charge additional fees to store customer credit cards, which makes it easier for your customers to place additional orders.

So there you have it – online payment processing is very different than in-store payment processing for several reasons, and, as a result, it ends up being more expensive. This is very important to keep in mind when you’re comparing your online payment processing costs to your in-store payment processing costs.

It’s also worth noting that the payment processing rates that Brandibble can offer its customers via our payment processing relationships are a lot better than what merchants typically pay for e-commerce (i.e. card not present) payment processing. The major e-commerce processors (Stripe and Braintree are the largest) both charge 2.9% + $0.30 per transaction, and for small ticket online ordering transactions, the $0.30 is VERY meaningful. It’s another 2% for a $15 transaction, bringing your all-in rate to almost 5%!  That’s super high, whereas Brandibble’s payment processing partners can offer pricing that’s in the 3-3.5% range.

Suffice it to say, we’ve done our homework on this stuff, and we’re doing our best to help our customers obtain the lowest “card not present” pricing possible.  We also don’t collect any portion of these fees ourselves – our customers have direct relationships with the payment processor (and therefore receive deposits on a daily basis vs. waiting 30-45 days to collect your online ordering revenues). All in all, we think it’s a very good deal for our customers.

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