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. 

Four reasons why payment processing is more expensive Online vs. In-Store:

1. Card-issuing banks and card networks charge higher general fees for online transactions. Explained below. 

2. Payment processors charge additional fees to use the AVS service to verify a customer’s address. Explained below. 

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. Explained below. 

4. Payment processors charge additional fees to store customer credit cards, which makes it easier for your customers to place additional (or repeat) orders. Explained below. 

Understanding Credit Card Fraud

The primary reason payment processing fees are higher online is due to 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. If your physical credit card happens to get lost or stolen, you are likely already aware of this (or soon will be). Once you figure out that your credit card is stolen, the first thing you do is cancel it. As a result, credit card issuers are fairly confident that a physical credit card swipe or chip-read is coming from the true owner of the card, which poses very little risk to them. 

For online transactions, however, you don't need the physical card to place an order – you just need the full card number, expiration date, 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 all the card networks (Visa, Mastercard, Discover, and American Express) charge higher fees for online transactions as they pose a higher risk to these companies. 

Preventing Credit Card Fraud

Online transactions are also more expensive for reasons related to preventing credit card fraud. In order to prevent fraud in online transactions, payment processors allow you to verify information other than just the basic credit card number and expiration date. Note that submitting your credit card number and expiration date online is equivalent to a credit card swipe in a physical location. More sophisticated measures are put in place for more secure transactions.

There are two ways to verify credit cards online: 

1. AVS (Address Verification System)
   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 used to verify your address. If it matches, the transaction can go through.

2. CVV (Card Verification Value)
   The 3 or 4-digit number on the back of your credit 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. If it matches, the transaction can go through. 

Payment processors charge additional 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 billing address or CVV when they swipe a card), so this is another reason why online transactions are more expensive to process than in-store transactions. 

Providing Convenience to Your Customers

As we all know, entering your credit card info online is a pain, especially on a smartphone. Customers ordering from Direct Ordering's web and mobile channels have the ability to securely store their credit card(s) within their personal Direct Ordering accounts so they don't have to reenter their payment information for every subsequent transaction. This allows customers a major convenience and earns them a frictionless checkout experience. This advantage not only leads to more orders for your restaurant, but also higher customer satisfaction. Credit card storage paired with Direct Ordering's easy "Reorder" button, allows busy customers to place an order in as few clicks as possible.

Credit card processors charge additional fees for saving cards online, yet another reason that online transactions are more expensive than in-store transactions.

In Conclusion

The details above are important to keep in mind when you’re comparing your online payment processing costs to your in-store payment processing costs, as online processing rates will always be higher.

It is worth noting that the major e-commerce processors (Stripe and Braintree being the largest) commonly charge 2.9% + $0.30 per transaction, which for smaller-ticket transactions, the $0.30 is very meaningful — that's another 2% on a $15 transaction, bringing your all-in rate to nearly 5%!  

Direct Ordering is proud to allow restaurants a unique element of choice when determining who they will partner with to process their online transactions. We encourage you to reach out to your Direct Ordering contact for a list of our suggested partners to determine the best rate structure for your business model. Also please be aware that, unlike many other restaurant technology partners, Direct Ordering doesn't collect any portion of these fees for ourselves. The payment processing relationship is between you and your processor alone.