Accepting payments is one of a merchants’ most critical processes. In today’s digital-first world, connectivity is critical. But, what happens when the internet goes down or businesses need to take payments in rural areas?
In this article, we’ll look at an important capability your merchants may need when their connection inevitably drops — offline payment processing. This feature, which is built into some (but not all) payments hardware, enables merchants to keep selling and taking payments securely, even if they find themselves without Wi-Fi, wired connection or cell signal.
The Importance of Redundancy in Digital Payment Systems
Today’s digital payment solutions send transaction and card data to the card networks over the web. That means the system needs a connection to function as designed.
In an ideal world, internet connections would never drop. But, they do. So, whether it’s an in-store issue with Wi-Fi hardware, an outage in the area, or field sales in an area with little to no cell coverage, there are going to be times when a merchant’s primary connection isn’t available. When that happens, having a redundant solution in place is the difference between making sales instead of losing out on them.
There are two redundancy options you should encourage your merchants to have in place for such occasions. The first is a network failover as their main backup, and the second is offline credit card processing as their last line of defense.
Network Failovers
Network failovers are redundant connections that a payments system can automatically switch to when it detects that the primary connection has dropped. That might be a second hardwired internet connection or, in today’s 5G world, more likely a secondary data connection through one or more SIM cards and mobile carriers.
The idea with a network failover is that the switch from plan A to plan B happens automatically, resulting in no interruption for your merchant’s business. But, in a pinch, even their personal devices can become a secure hotspot to manually connect their point-of-sale (POS) or payments hardware to, as long as they’ve got bars.
Offline Card Processing
Sometimes, there’s simply no internet connection available. If your merchants sell in the field, they may run into this issue when they go into remote areas where cell coverage is spotty or non-existent. In these cases, where they either don’t have a failover or it’s out of service, offline card processing is a critical feature.
With offline processing, the merchant’s payments hardware effectively stores the transaction and payment data until a connection can be reestablished. That allows them to take payment anywhere, any time and provide their customers with a normal digital checkout and payment experience. Then, when they return to an area with internet or cellular signal, the device will automatically finish processing the payment.
How Offline Credit Card Processing Works
With the right hardware, your merchants’ customers won’t know the difference between an online and an offline payment experience. While some systems require offline payments to be entered manually, most modern hardware allows the end customer to tap, dip or swipe as normal. But, on the back end, things happen differently.
1) Your System Requires Offline Mode to be Enabled
Offline processing carries some elevated fraud risk. Most systems will require the merchant to enable the feature in order to protect them from accidentally processing offline transactions without knowing it.
2) The Transaction and Card Data Are Stored Securely Within the Terminal
In offline mode, the merchant’s system will issue what is effectively a temporary authorization for any payment they take, “completing” the transaction for the customer. But without a connection, no actual authorization can happen.
Instead, the payment data is stored securely within the payment terminal or within the smart device. Systems with offline modes are designed to ensure stored data is completely secure and everything stays Payment Card Industry (PCI) compliant. From a data security perspective, offline transactions are just as safe as normal ones.
3) After Reconnecting, the Transaction Completes as Normal
Once a merchant’s internet comes back up or they return to an area with cell coverage, the system will connect and send any stored offline payments through the network for authorization. The payment will then be officially approved or declined, and the transactions will be batched. It’s worth noting that if a merchant has a standard hold applied to their funding, the clock will start ticking once the system has reconnected — the offline time doesn’t count.
Important Considerations for Offline Card Payments
Offline payments are a critical backup option, but there are some key considerations your merchants need to understand in order to use the feature effectively and minimize both fraud risk and potential declines.
Transactions Eventually Time Out
It’s very important that your merchants understand how long a terminal or SoftPOS app will store an offline payment. It could be as little as 24 hours or as long as 72 hours, depending on the processor and the system. Any payment not sent over the network for authorization before the end of the window will time out and drop automatically.
Imagine a scenario where your merchant goes to a weekend festival in a rural area with poor cell coverage. If they have a 24-hour limit on offline payments, failing to return to a stable connection before the weekend is over could be disastrous for their business. So, make sure your merchants understand that reconnecting as soon as possible — and always within the prescribed window — is critical.
Fraud Risk Is Elevated, So Encourage Smart Transaction Limits
Because offline transactions can’t be sent in for immediate authorization or the usual automated fraud checks, they’re at elevated risk of unexpected declines and fraud. Both are still rare, but merchants should be aware of the risks so they can make smart decisions about when to use offline transactions and when not to.
One best practice is to use relatively low preset limits on offline transactions to ensure they can’t be abused and that potential losses from declines or fraud are absorbable. In general, offline transactions are most suitable for smaller ticket sales, where the occasional loss from a transaction that hits a snag is an acceptable risk in exchange for the convenience and flexibility of taking payments anywhere.
Getting Started With Offline Processing Capabilities
Whether your merchants use a countertop POS, a mobile reader, or an unattended kiosk, it’s important to offer offline payment processing for the rare, but inevitable, cases where a connection isn’t available.
NMI’s full suite of payments hardware provides a wide variety of offline payment options, so your merchants can choose the solution that ideally suits their budget, their business and their desired customer experience.
To find out more about offline credit card payments and how you can offer your merchants more reliable, interruption-free processing, reach out to a member of our team today.