Offline Credit Card Processing: A Small Business Owner’s Guide
As the global economy continues to recover from COVID-19, the worldwide credit card market is experiencing notable growth. Aggregate credit card sales are projected to increase from $100.05 billion in 2020 to an impressive $103.06 billion in 2021. This represents a compound annual growth rate (or CAGR) of 3% for the period.
However, despite the increasingly sophisticated card processing technology, power and internet outages threaten to disrupt this global economic engine. Fortunately, offline credit card processing enables many businesses to continue generating sales even when electronic communication systems have been disrupted.
In this article, we’ll explore the ins and outs of offline credit card processing to help you decide if it’s right for your small business.
What Is Offline Credit Card Processing?
The term “offline credit card processing” refers to completing credit card transactions without an internet connection. For clarity, compare a standard Visa, Mastercard, American Express, or Discover credit card transaction to an offline purchase.
Standard Credit Card Transaction
First, the cardholder places their magstripe or EMV (or chip) card directly into the payment terminal. If they are using a contactless (or NFC) card, they will hold the card an inch or two from the device. This enables the data transfer to take place.
Next, the merchant’s bank forwards the card data to the cardholder’s credit card network via a secure internet connection. If the transaction is approved, the sale is quickly completed. If denied, the customer will be asked to consider other payment methods.
Offline Credit Card Transaction
During a power and/or internet outage, the credit card network cannot authorize the purchase. The electronic payment gateway, necessary for online transactions, will also be unavailable. Although PayPal transactions do not involve cards, this internet-based payment network is also disabled during an outage.
With an offline transaction system, however, a customer can easily submit their card to the payment terminal. The device encrypts and saves the card data on a real-time basis. When the internet connection is re-established, the terminal sends that information to the merchant’s bank and card network.
How Does Offline Credit Card Processing Work?
From the customer’s perspective, an offline credit card transaction mirrors a standard credit card purchase. Here’s how an offline transaction works.
- The cardholder swipes, taps, or dips their card through a payment terminal.
- The terminal encrypts and stores the transaction data until the internet connection is restored.
- When the internet connection is available, the payment terminal transmits the transaction data to the merchant’s bank and credit card network.
- The card network issues a transaction authorization or declines the request.
- If the transaction is approved, the card-issuing bank places a hold on the cardholder’s card for the transaction amount.
- If the transaction request is denied, the cardholder will be asked for another payment method.
When Is Offline Credit Card Processing Beneficial?
With offline credit card and debit card processing capabilities, your small business can continue to process customer transactions even during internet and/or power outages. In addition, offline card processing enables certain types of businesses to generate income away from a traditional brick-and-mortar setting.
- Mobile service providers: Plumbers, electricians, mobile dog groomers, and other service providers typically work onsite at customers’ businesses or homes. An offline credit card processing option means the service provider can avoid laborious billing paperwork.
- Construction businesses: Jobsite supervisors often receive materials deliveries and pay vendor invoices. An offline payment processing system enables fast payment with minimum workflow disruption.
- Landscaping and lawn care companies: After workers have completed a customer’s job, offline credit card processing provides a convenient payment method. This enables minimum downtime and greater productivity.
- Food truck vendors: A food truck may operate in a single location or rotate between several desirable spots. With offline payment processing capabilities, operators can keep up with high-volume transactions.
- Farmer’s market and craft show vendors: These popular community-based businesses can offer good income opportunities. By accepting offline credit card transactions, these small business owners will likely avoid lost sales.
Are Offline Payments Safe and Secure?
Offline credit card processing does come with two significant risks. As the merchant, decide whether you are willing to accept the risks before accepting offline payments.
No Guarantee of Payment Acceptance
First, the initial transaction approval request does not go through until the system’s internet link is working again. So, there is no guarantee that the payment will be completed.
In the meantime, the merchant (you) processes an offline transaction and allows the customer to leave the checkout station with the merchandise. If the transaction is later declined, you lose the dollar amount of those items unless you can obtain another form of payment.
Further, let’s say credit card processing companies and POS system operators allow offline payments. These businesses are not likely to provide protection against lost income due to declined transactions. The merchant assumes this risk when they accept the offline payment.
Safety of Stored Credit Card Data
If your business accepts offline credit card transactions, you may be concerned about the safety of your customers’ stored credit card information. First, let’s assume your business adheres to the universal PCI compliance standards (or PCI DSS standards). PCI standards ensure the security of customers’ card data.
Here’s why your customers’ card data will stay secure during an offline transaction: When the credit card terminal or card reader receives this data, the information is immediately encrypted. The credit card processor is the only entity that can decrypt this data.
How to Accept Credit Card Payments in Offline Mode
There are three methods of processing offline card transactions. Each method involves a specific type of equipment and processing method.
Low-Connectivity Payment Terminal
Payment terminals have different connectivity needs. For example, certain payment terminals can process payments normally even with weak internet connectivity. In contrast, WiFi terminals require stable connectivity. Your current terminal may still be functional even with substandard connectivity.
Offline-Enabled Card Terminal
It’s possible to configure a terminal to process credit card payments with or without an internet connection. Each business’ merchant services provider determines whether its terminals have this offline processing capability.
On a related note, some merchant services providers determine a maximum period (usually 24 to 72 hours) for a pending transaction. If the sale has still not been processed when the period ends, the transaction is canceled and the cardholder’s details are erased. Merchants should clarify both issues before choosing a merchant services provider.
Old-Fashioned Card Imprinter
When technology simply refuses to cooperate, a manual card imprinter offers a low-tech solution. The imprinter uses carbon paper to imprint the credit card’s embossed card numbers and expiration date onto a paper slip.
An employee writes the rest of the cardholder’s information onto the form. When internet service is restored, the employee enters the credit card information into the point-of-sale system (or POS system).
Best Practices for Offline Card Processing
Let’s say you plan to process offline credit card transactions. These four best practices will minimize your risks.
- Place a maximum dollar amount on all offline transactions. All sales above that amount would need authorization.
- Consider limiting higher-dollar offline transactions to regular customers.
- Establish workplace rules for offline credit card processing. Provide cashiers with adequate training that makes them aware of the transaction risks.
- Choose a payment processor like Payment Depot that offers 24/7 live customer service. This round-the-clock support will help your business to deal with chargebacks or other customer issues.
Offline Credit Card Processing: Making the Right Decision
When evaluating offline credit card processing, consider the nature of your business. If you regularly process numerous small transactions, you won’t lose much money if a few of them are not completed. You would have a much greater income loss by not processing any transactions.
However, maybe your customers typically make larger purchases, and they are willing to wait until your POS system is operational. In that case, offline processing may not be worth the risk.
To efficiently process your customers’ payments without breaking the bank, consider Payment Depot’s membership-based pricing and acclaimed customer service. Contact us today to learn how we can help you save up to $800 every month in credit card processing costs.
FAQs about Credit Card Processing
Q: What is offline credit card processing?
Offline credit card processing refers to the completion of credit card transactions without an internet connection. The card data is encrypted and saved by the payment terminal during the transaction and is transmitted to the merchant’s bank and card network once an internet connection is restored.
Q: How does offline credit card processing work?
When a cardholder swipes, taps, or dips their card through a payment terminal, the terminal encrypts and stores the transaction data. This data is transmitted to the merchant’s bank and the card network when the internet connection is restored, followed by authorization or decline of the transaction.
Q: What businesses can benefit from offline credit card processing?
Offline credit card processing can benefit a range of businesses, including mobile service providers like plumbers, electricians, mobile dog groomers, construction businesses, landscaping and lawn care companies, food truck vendors, and farmer’s market or craft show vendors who often operate in environments with unreliable or unavailable internet connection.
Q: What are the risks associated with offline credit card processing?
Offline credit card processing involves risks such as transaction approval not being immediately possible due to the absence of internet connection. Additionally, declined transactions can lead to income loss, as the customer leaves with the product before the transaction is processed and confirmed.
Q: Who determines if a business can process transactions offline?
The ability to process transactions offline is determined by each business’s merchant services provider. Some providers allow their payment terminals to have offline processing capabilities and may establish a maximum period for a pending transaction.
Q: How is customer information protected in offline credit card processing?
The protection of customers’ information during offline credit card transactions is ensured through PCI compliance standards. Once a credit card terminal or card reader receives this data during a transaction, the information is immediately encrypted, and it can be decrypted only by the credit card processor.
Q: What solutions can businesses apply to minimize the risks of offline credit card processing?
Businesses can minimize the risks of offline credit card processing by implementing certain best practices such as setting a maximum dollar amount for all offline transactions, restricting higher-dollar transactions to regular customers, establishing rules for offline processing, and selecting a payment processor with 24/7 customer service.
Q: What factors should a business consider when evaluating offline credit card processing?
When considering offline credit card transactions, a business should take into account the potential income loss from incomplete transactions versus the potential loss by not processing any transactions. Businesses dealing with smaller transactions would face less risk compared to those dealing with larger transactions. The patience level of customers during periods of downtime should also be taken into consideration.