Accepting offline credit card transactions…
Picture the scene:
You’re a wine merchant and you have a new customer who has come in to buy several cases of wine, say for a wedding.
You’re excited because it’s a big sale, so you’re eager to make the process as pleasant as possible for the customer. Unfortunately, for whatever reason you can’t seem to connect with your credit card processor at that moment. You’re swiping the customer’s card and you just can’t connect to get the card authorized. What do you do?
There are a growing number of payments providers out there who are celebrating the fact that they can process credit card transactions in ‘offline mode’, i.e. without any kind of data connectivity. I’ve run several stores over the years and I’ve lost business because of connectivity issues, so I know first hand how detrimental a failure to accept cards can be. But the idea that this kind of ‘credit card offline mode’ is some quick fix to this problem is just misleading.
To return to the example above. Let’s say, you have a payments system that lets you take credit cards when offline. You swipe the card, ‘take the payment’, and send the customer off with a car full of your inventory. Only it turns out the card wasn’t valid, or the customer charged the amount back, denying they carried out the transaction. Now you are stuck with the loss, or at best in a fight with your payments processor who is demanding proof that the transaction occurred. This is not a fun position to be in.
To put it clearly, it is potentially dangerous for your business to accept credit card transactions without a real-time authorization from the processor. If you don’t receive a real-time authorization then the transaction must eventually be processed later to get the funds. If the card declines when it is finally processed, the merchant is out the money after giving over the product.
So, Offline Credit Card Processing is Bad, Right?
Well, as with so many things, it’s just not that straightforward. In general, small business owners should avoid offline credit card processing for the reasons outlined above. That being said, there are occasions when accepting offline credit card transactions might be worth the risk.
The most common example of this is in the Fast Casual environment, where the time it takes to authorize each and every card can dramatically slow your service. For this merchant type, the potential risk of fraud is minimized by the fact that they are processing a high number of low-ticket size transactions, making it much less likely that they are going to end up significantly out of pocket. These small business owners are able to make a judgment call that the extra volume they put through each day will more than make up for potential fraud.
Equally, a lot of small businesses on Main Street are able to build up a trusting relationship with their regular customers, in which case the risk is again reduced in when processing offline credit card transactions.
What Can I Do To Protect Myself?
Many cashiers do not understand what it means to process an offline credit card transaction and aren’t aware of the risk. It is up to the manager or owner to protect themselves by providing adequate training and putting appropriate rules in place for offline credit card processing.
A transaction limit is a good first step, even in a Fast Casual environment. This means that all cards above a certain dollar amount, say $20, must be authorized.
Equally, merchants with a high volume of transactions at a set time of day can set a rule that doesn’t require their cashiers to seek authorization for the card during those peak hours.
Finally, make sure to choose a payments partners that offers 24/7 customer support. There is nothing more frustrating than a chargeback that you sold in good faith, only to have no recourse to resolve the situation. We cannot stress this enough. Choose a payment processor you know you’ll be able to get a hold of when these things happen.
A huge part of why ShopKeep was born was due to our founder’s experience with a point of sale system that just wouldn’t work without a data connection. He knew he wanted to build a system that could be relied upon, no matter what the circumstance.
With ShopKeep, you’ll always be able to ring up a transaction and accept cash as payment. However, because we cannot guarantee authorizations on offline credit card transactions, ShopKeep does not support offline credit card processing on our iPad-based point of sale system.
If you’ve lost money because of an offline credit card transaction, tell us about your experience in the comments below.