Card-present vs card-not-present payments: fees, fraud risk and merchant liability explained

Card‑present (CP) transactions happen when the payment credential is presented to a physical terminal. Examples include tapping a card, smartphone or smartwatch in a store. Card‑not‑present (CNP) transactions occur when the card and customer are not physically there, such as online, phone or mail‑order purchases. Because CP transactions involve physical verification and secure chip or contactless technology, they carry a lower risk of fraud than CNP transactions.

Fraud rates for online CNP transactions are higher than for in‑store CP payments because financial institutions are able to check for several security signals during a CP transaction. It’s not just that they know the card or device is physically there in the store; there’s also the EMV chip or contactless cryptograms (unique, one‑time codes) and, in the case of digital wallets, strong device-level authentication such as biometrics on the customer’s phone. These protections all add up to make CP transactions much better at stopping fraudsters.

Yes, when a digital wallet is used to make a payment in store it is treated as a CP transaction just like a credit card. But this applies only to in‑store tap‑to‑pay transactions; online or in‑app wallet payments are considered CNP. When the customer taps their smartphone, smartwatch or tablet to use Apple Pay or Google Pay at the counter, it is recognized as an in-person payment because the device is physically there even though the card is stored digitally. There’s an added advantage too: devices use NFC (near-field communication) technology, tokenization and biometric authentication, so digital wallets are often more secure than a plastic card.

Tap to Phone lets you take payment from customers using just your phone with no dedicated payment terminal required. This solution turns your smartphone into a secure payment terminal, allowing shoppers to tap their card or digital wallet directly onto your device. For business owners, Tap to Phone not only lowers setup costs but it also enables a mobile, flexible checkout experience, so people can pay for goods anywhere in the store and you can reduce the time spent waiting in line to pay. Tap to Phone is secure because it uses the same EMV and NFC standards as traditional terminals and it encrypts and tokenizes payment data while also meeting PCI DSS compliance requirements.

A chargeback is when a customer contacts their card issuer to dispute a charge and get their money back, which can have a huge impact on your revenue and reputation. Chargebacks may take place when a customer has received an item and they believe it’s not what they ordered or were expecting—but they can also be made for fraudulent reasons. The retailer must return the money or prove they sent the correct goods. This type of dispute is less likely to happen when the customer has picked out the item in the store themselves. Sadly, a lot of chargebacks are due to “friendly fraud,” for example when a customer buys something online, then claims they never received it.

When it comes to online or CNP transactions, your business is usually the one held responsible for the financial losses when fraud occurs. However, if a merchant uses an extra layer of authentication like EMV 3-D Secure, the liability shifts to the issuer, or customer's financial institution. CP transactions are much safer—using chip and PIN or contactless technology—so the liability for fraud usually rests with the issuer for failing to prevent the unauthorized transaction. Merchants can become responsible if they accepted older, less secure ways to pay such as chip and signature or magnetic swipe.

Yes, CP payments are a great way to bring together customer transactions and loyalty programs in one place. Your business can integrate modern CP systems easily, allowing customers to earn rewards automatically whenever they pay. Implementation depends on the POS system and customer consent. Secure technologies like tokenization make it possible for merchants to recognize returning customers without storing sensitive card data too, creating a loyalty experience that is both frictionless and secure.

A payment gateway (such as Authorize.net) is used to process and accept payments while also accessing services like transaction management, reporting and billing. In physical stores, payments are typically processed through a POS system and processor, while the payment gateway may support reporting, mobile checkout or centralized transaction management.

How soon you can start accepting payments depends on factors like how quickly your payment gateway can approve your account and whether you have an existing merchant account (needed to accept credit cards). For example, Authorize.net can approve your account once the application is completed successfully and then you can be ready in a few minutes simply by updating your payment gateway with the parameters provided by your merchant provider. All-in-one accounts, which include a merchant account, can take up to five business days to open—subject to certain information like the account holder’s credit history or what industry they work in.  

One of the key players in the payments process, an acquirer is a financial institution that acts on behalf of your business. It processes and settles payments made by your customers via their issuing bank by communicating between the merchant, and a card payment network like Visa.

No, you do not need acquirer bundling for your business to accept payments, but for some it’s a quicker and easier way to get started. Traditionally, services like merchant accounts, payment gateway and payment processing were sourced separately. Today, a payment service provider might offer an all-in-one bundle. One option for acquirer bundling is Authorize.net, which offers an all-in-one solution with a merchant account and gateway, where you can be set up quickly upon approval.