It can be difficult to understand the fees associated with your point of sale system and accepting card payments when you have a small business. You may need to learn exactly how your issuing bank and payment processor are charging you.
It is essential to be aware of the debit card processing fees you incur when accepting these transactions, as consumers are increasingly choosing to pay with debit cards instead of credit or cash.
Debit and credit cards are often thought of as interchangeable by merchants, but they are actually very different.
When a credit card is used to make a purchase, the issuing bank pays the expense of the transaction temporarily, while a debit card withdraws the money directly from the customer’s bank account. This distinction implies that the use of a debit card decreases both the transaction’s risk and the amount of processing fees that businesses must pay.
Businesses need to know how card processing fees differ from credit card fees. By knowing these fees, merchants may save money on processing expenses by developing an efficient debit card acceptance strategy.
This article will go through the details of debit card processing fees, such as how much they charge, the transaction types and their differences, and much more.
Debit Card Transaction Types
When a client uses their debit card for a purchase, the payment can be verified in one of two ways: through a personal identification number (PIN) debit card or with a signature debit card. The method used to verify the customer’s identity will determine whether the transaction is processed as a PIN debit or a signature debit. Here is some information about the two methods:
PIN Debit Card
PIN debit card transactions are ones in which the customer enters their personal identification number (PIN) into the card terminal to authenticate the transaction. These transactions are typically less expensive for merchants to process than signature debit card transactions, as they involve less risk for the merchant.
Signature Debit Card
Signature debit card transactions are ones in which the customer signs a receipt or electronic pad to authenticate the transaction. These transactions are typically more expensive for merchants to process than PIN debit card transactions, as they involve a higher level of risk for the merchant. This is because signature debit card transactions are processed through the credit card network rather than the debit card network and are, therefore, subject to higher fees. The exact amount for signature debit card transactions will again depend on their credit card processing service provider.
Difference Between The Two Transaction Types
PIN and signature debit card transactions differ in the way that they are processed. PIN debit transactions are processed through the banking network, while signature debit transactions are processed through the credit card network. This difference in processing networks can have a significant impact on the fees for debit card transactions.
In general, PIN debit transactions are less expensive for merchants to process than signature debit transactions. This is because PIN debit transactions involve less risk for the merchant, as the customer is required to enter their personal identification number to authenticate the transaction.
In contrast, signature debit transactions are handled through the credit card network, which typically charges higher fees to merchants. The exact amount of these fees will depend on the merchant’s credit card processing service provider.
In addition to the difference in processing networks, there are other factors that can affect the fees for debit card transactions. For example, the type of card being used (e.g., a standard debit card or a premium debit card), the merchant’s industry and business size, and the merchant’s credit card processing service provider can all play a role in determining the fees that merchants are charged.
Debit card processing fees are charges that merchants pay every time a client utilizes a debit card to make a purchase from them. These fees are usually in the form of interchange fees, which are intended to cover the expenses of handling, fraud protection, and payment processing. Interchange fees are among the ways banks profit from payment card issuance, and they normally apply when a consumer uses a debit card to complete a purchase.
The exact amount that merchants pay in debit card processing fees can vary based on several factors. These include the merchant’s industry and business size (as reflected in the merchant’s category code), the processing method (debit or credit), the type of card, the type of transaction (PIN or signature), and the size of the bank issuing the card. For example, a gas station may have different interchange fees than a restaurant, and a regulated bank (one with over $10 billion worth of assets) may have different costs than an unregulated bank (one with under $10 billion worth of assets).
Regulated and Unregulated Debit Cards
Debit card processing costs can also vary if the providing institution is regulated or unregulated. After the Durbin Amendment was approved in 2010, transactions using bank-issued debit cards, with over $10 billion worth of assets, were restricted at $0.21 + 0.05%.
Unregulated debit, on the other hand, refers to bank-issued debit cards with under $10 billion worth of assets. Interchange costs for these cards vary depending on the merchant category code, the transaction size, and the card provider. Similar to regulated debit, some debit networks set a maximum charge that firms must pay, while others do not. This opens the door for enterprises and networks to negotiate advantageous fee limitations.
For example, regulated Visa debit card transaction fees may vary depending on many criteria, such as transaction size. A $10 sale using a regulated Visa debit card may incur an interchange charge of $0.225, but a small ticket Visa debit card may incur an interchange cost of $0.21. These costs are in addition to any other debit card processing fees owed by the business.
In conclusion, it is essential to understand the fees associated with accepting card payments. Debit and credit cards may be commonly thought of as interchangeable by merchants, but they are actually quite different.
When a credit card is used to make a purchase, the issuing bank temporarily pays the transaction’s expenses. In contrast, a debit card withdraws the money directly from the customer’s bank account. This difference means that using a debit card decreases both the transaction’s risk and the amount of processing fees businesses must pay. Therefore, it is vital for merchants to be aware of the debit card processing fees they are incurring and to develop an efficient debit card acceptance strategy to reduce these costs.
Debit card processing fees can be complex and may be affected by various factors such as the type of transaction, the merchant’s industry and business size, and the size of the bank issuing the card. By understanding these fees, merchants can make informed decisions about how to accept debit card payments in a way that is cost-effective for their business.