Why are fees higher for card on file??

[Skinbycherokee]

I noticed this week that when I charge clients using their card on file, the processing fee is 3.5%. I see that with the new fee structure manually entering cards comes with a higher processing fee… But why is it higher for cards that are stored? We aren’t entering these cards, I swiped their card to save it on file the first time. This is confusing to me, and seems to defeat the purpose of storing cards on file. 

[Donnie-M]

@Skinbycherokee It has to do with "card not present" transactions.  The risk of fraud is higher even though you have the card information saved on file.  The best way to look at it is like this:  The safest transaction and cheapest is in person with a chip dipped or tapped card.  The system knows that a card is physically present and generally that means under the control of the person issued the card.  In these transactions, the risk is very very low and you get the best rate and most protection from chargebacks.

A card on file can be charged without the customer present for the transaction.  It is generally very convenient, but inherently has higher risk.  This is true for all credit card processors/companies.  Storing cards on file is for convenience and really for if you do a lot of not in person transactions or want to provide that service.  Otherwise, I think it is always best to dip that card every time.

Hope this helps,

[Skinbycherokee]

I understand this, but most of my cards on file were actually scanned in in my studio. I actually swiped their card to get it on file. So it’s very frustrating that I took that step, and still have to ask my clients for their card every time. It looks very unprofessional. And even more unprofessional if I have to explain to the clients that I’m trying to save fees. I’m just going to start asking them for Venmo instead and save the trouble

[JJ_]

I can agree with you that Card on File is very confusing. While you might have swiped the card to add it to your account every time you process a transaction with that card the Cardholders bank looks to confirm one of four "processing protocols" and they are Swiped (Magstripe) Dipped (EMV Chip), Tap (NFC or Digital Wallet), and lastly Keyed or Manual Entry. Because Card on File is not considered any of the first three transactions the Processing bank determines the payment was a Card Not Present transaction just as @Donnie-M mentioned. 

At this time Cards on File are meant as a convenience for when you cannot have your Customer in front of you and you need to process a payment. 

I hope this information is helpful @Skinbycherokee