Offline credit card processing allows you to accept offline credit card transactions, but do the pros outweigh the cons?

Picture the scene:

You own a wine shop, and you have a new customer who has come in to buy several cases of wine for a wedding.

You’re excited because it’s a $1,000 sale and you’re eager to help the customer and make the process as pleasant as possible. You guide the customer through the aisles while offering your expert advice as they make their selections. All is going well.

Now it’s time to ring up the sale. You swipe the customer’s credit card, but unfortunately, your internet connection is down, and the credit card terminal cannot connect with your processor at the moment. What do you do?

  1. You could write down their sensitive credit card information on a piece of paper and process it later, but this will just put you in a PCI compliance pickle.
  2. You could hold the customer’s purchase on the side, take their down their contact information and call them when the internet is back up, but chances are pretty high that the customer is not going to return.
  3. You can request a cash-only sale, but it isn’t likely your customer has that kind of money in their back pocket.
  4. You can turn down your customer politely, refer them to the nearest liquor store and kiss your golden goose goodbye.

These are some of the common decisions merchants have to face when they aren’t prepared to process payments offline. However, there is a fifth option, offline credit card processing.

As with so many things, it’s just not as straightforward as calling your processor and asking them to turn on a feature. Which is why we’ve put together this comprehensive guide to help you navigate the elusive world of offline payments.

What is Offline Credit Card Processing and Can I Accept Offline Transactions?

When it comes to answering these questions, the first thing you have to ask yourself is, “Does my payment processor allow offline payments?” In other words, can you accept credit card payments without internet connectivity?

This is what the payments industry refers to as ‘offline transactions’ or ‘store-and-forward.’ It’s a way to allow business owners like you to ‘accept’ credit card transactions even though your credit card terminal has temporarily lost its internet connection. The caveat is that this offline ability or feature is something that only certain payment processors allow.

For example, when a cardholder makes a purchase and the merchant is in offline mode, the PAN (personal account number) and other sensitive data is encrypted from the first point of contact — swipe, insert, contactless (NFC). The encryption is an algorithm that scrambles the sensitive card data, making it impossible for anyone without the encryption key to decipher. And the one that holds the encryption key is the payment gateway or payment processor.

SEE ALSO: Small Business Credit Card Processors — Here’s What to Ask

The Risks of Offline Credit Card Processing

To put it plainly, there are potential risks for your business to accept credit card transactions without a real-time transaction approval from the payment processor. If you don’t receive a real-time authorization, the transaction must eventually be processed later to get the funds.

Tip: It’s important to know that ‘later’ will mean different things to different processors. Some payment providers may limit the amount of time you have to ‘forward’ an offline transaction to 24 hours, while others give you seven days. Make sure to check with your payment provider to find out the details.

To return to our example, let’s say you have a POS system that enables you to take credit cards offline. You swipe the card through the payment terminal, ‘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 back the amount with the card issuer, denying they carried out the transaction. Now you are stuck with the loss, or at best in a fight with your payment processor who is demanding proof that the transaction occurred. This is not a fun position to be in.

SEE ALSO: Credit Card Processing Fees: What You Need to Know

Offline Credit Card Processing Best Practices

The good news is that as long as you fully understand the risk you’re taking with accepting offline transactions, there are best practices you can follow to eliminate any unnecessary hiccups.

Since many cashiers do not understand what it means to process an offline credit card transaction and aren’t aware of the risk, it’s up to the manager or owner to protect themselves by providing adequate training and putting appropriate rules in place for offline credit card processing.

  • 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 transaction limit is an excellent first step, meaning that all charges above a specific dollar amount, say $20, must be authorized. Essentially, this is the amount you’re willing to lose if the transaction is declined or charged back.
  • Merchants with high volume transactions during a particular time of day can set a rule that doesn’t require cashiers to seek authorization for the card during those peak hours.
  • If you sell items that have a higher average ticket amount than a fast-casual restaurant, you may decide only to accept offline credit card transactions from your regular customers.

To our last point, as a local business owner, it’s not uncommon to build trusting relationships with your regular customers, in which case the risk is reduced when processing offline payments.
Your regulars are far less likely to stiff you than someone who just walked into your store for the first time.

Is Offline Credit Card Processing Right for my Business?

It’s important to note that because processing payments without an internet connection requires getting approval for the transaction later, there is a higher risk associated with these situations.

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 quick-service restaurants (QSRs), where the time it takes to authorize each card can dramatically slow down service. For this type of business, the potential risk of fraud is minimized by the fact that they are processing high volume, low-ticket size transactions. Basically, this means there are a lot of transactions (high volume), but the dollar amount (low-ticket) of those transactions is small.

Think about a trendy downtown cafe across the street from a new state-of-the-art office building that houses dozens of companies with hundreds of employees. Many of those employees go across the street to the cafe for lunch where the average individual spends about $12 for their afternoon meal.

In a case like this when customers have a limited amount of time for a meal, fast service is critical to keeping customers happy. As such, the risk of the $12 you may lose on a transaction not authorized in real-time, far outweighs a slow customer experience.

The bottom line is always to choose a merchant account provider or payment processing that will allow offline credit and debit card transactions. This way, at least you have the flexibility to decide if offline payments are right for your business. And if so, at least now you understand the risks and are armed with best practices to minimize any potential loss.

If you’ve lost money because of an offline credit card transaction, tell us about your experience in the comments below.

Yamarie Grullon

Yamarie Grullon has years of experience creating helpful & engaging content for small business owners. As Director of Content Strategy at ShopKeep, a leading iPad Point of Sale System, Yamarie provides merchants with practical advice on all things related to business or point of sale.