When you run a small business, the multiple types of fees associated with the hardware, software as well as fees for accepting card-based payments can be overwhelming. As a matter of fact, you might not even know the exact amount that you are being charged by your payment processor or the issuing bank.
Consumers nowadays continuously prefer making payments via debit cards over both cash or credit. Therefore, it is imperative for merchants to know about the respective debit card processing fees for 2022 and 2023 you might be incurring when you accept debit card transactions from customers.
Understanding Different Types of Debit Card Transactions
Are merchants charged anything for accepting debit card transactions? Yes. However, the amount they are charged usually varies from one debit card processor to another. There are different types of debit card transactions you need to understand before diving into an overview of the debit card processing fees. Here are some of the most common:
- PIN Debit Transactions: The concept of PIN debit transactions is applicable when the customer completes the transaction as he or she enters the respective PIN or Personal Identification Number upon inserting or swiping the debit card. Usually, the merchant is not required to ask for a physical signature for completing PIN-based debit card transactions.
PIN-based debit card transactions are also known as online debit transactions. It is because the respective payment information is processed with the help of the debit card network -rather than the card processing company like Visa or MasterCard. In this case, there is the presence of a debit network as well that is responsible for charging the debit card processing fees.
- Signature Debit Transactions: According to the name, the signature debit card transaction will take place when the customer is expected to sign the respective sales receipt. This type of debit card transaction is applicable upon the swiping of the debit card. The customer or merchant, in this case, will choose to process the debit card in the form of ‘credit.’ Rather than entering a dedicated PIN, the customer is expected to sign with a pen or digitally.
In comparison to PIN-based debit card transactions, the signature form of payment is directed to the bank through the network of Mastercard or Visa -rather than the debit network. As the task of debit card processing takes place outside the domains of the debit network, signature-based debit card transactions are also referred to as ‘offline debit card transactions.’
This is important to understand that while the transaction might be getting processed in the form of ‘credit,’ the funds will not be borrowed -like in the case of the credit card transactions. On the other hand, the funds are still drawn out of the checking account of the customers.
What is the Main Difference Between These Debit Card Transactions?
Usually, signature-based and PIN-based debit card transactions tend to differ in the manner in which the payment is getting processed. The banking network is responsible for processing the payments made through PIN-based debit card transactions. On the other hand, the credit card network is responsible for processing the payments made through signature-based debit card transactions.
In addition to this, the method in which the payment is being processed also plays a vital role in determining the type of debit card processing fees that should incur.
Debit Card Processing Fees for 2022 and 2023
As far as the overall debit card processing fees are concerned, you should understand the fee structure can be slightly complicated. It is because there are several factors that go into the concept of determining how much you will be paying for every debit card transaction.
However, on an overall basis, you will be paying debit card processing fees in the form of interchange fees. Interchange fees usually apply whenever a customer will be making use of the debit card to make purchases from your brand or company. In simpler words, whenever any customer will be paying through a debit card, you are expected to pay a specific fee to ensure payment processing.
Usually, interchange fees are responsible for paying for the overall costs of fraud prevention, payment handling, and payment processing. These are one of the ways in which banks and payment processors tend to make money with the help of issuing payment cards.
As mentioned previously, debit card transaction fees will vary depending on different factors, including:
- Processing Method: Whether the payment is getting processed as credit or debit.
- Category of the Merchant: The merchant code of your business depends on the industry and business. For instance, the interchange fees for a gas station will be different from the interchange fees of a restaurant.
- Card Type: Different banks go ahead with issuing different types of debit cards featuring different debit card processing fees.
- Bank Size: Whether the banking institution is regulated (holding more than $10 billion in the form of assets) or unregulated (having less than $10 billion in the form of assets)
- Transaction Type: Whether the debit card transaction was signature-based or PIN-based.
Debit Card Processing Fees for Signature-based Vs. PIN-based Transactions
When you are accepting payment in the form of debit, along with the customer paying through PIN-based transactions, the respective debit network will be responsible for charging the debit network fee. Usually, these transactions feature lower percentage fees along with higher transaction fees.
On the other hand, when the merchants accept payments in the form of credit, the payment processing takes place through the respective credit card network. Therefore, you have to incur the credit card network fee (varying fees for Visa, AMEX, Mastercard). In the case of credit networks, you will observe a lower transaction fee and a higher percentage fee.
Unregulated Vs. Regulated Debit Cards
Additionally, you can think of incurring a lower or higher fees based on whether the issuing bank of the debit card is unregulated or regulated.
To understand, there tends to feature regulated debit when the consumer will be using a debit card that has been issued by the bank having more than $10 billion in the form of assets. After the passing of the Durbin Amendment in 2010, the transactions have been capped at $0.21 along with 0.05 percent.
On the other hand, unregulated debit is the one in which debit cards are issued by banks having less than $10 billion in the form of assets. In comparison to regulated debit, there can be the presence of varying interchange fees which will ultimately depend on the following factors:
- Card company
- Transaction size
- Category code of the merchant
There are some debit card networks that tend to place a cap on the maximum interchange fee paid by different businesses -including regulated debit. However, there are other networks having no such caps.
An instance of how interchange fees for Regulated Visa Debit Card will vary will depend on different factors is:
Visa Regulated Debit Card
- Interchange: 0.05 percent plus $0.22
- Interchange fee on sale of $10: $0.225
Visa Small Ticket Debit Card
- Interchange: 1.60 percent along with $0.05
- Interchange fee on the sale of $10: $0.21
As it can be observed, Visa is known to charge varying interchange fees depending on the size of transaction. Smaller fees for debit card processing will be applied to the sales made under $10. It turns out to be a beneficial solution for small businesses selling small-ticket items.
Interchange Fees Depending on Different Industries
The debit card processing fees tend to be quite confusing. To top it all, you will also observe that interchange fees will vary depending on the industry. For instance, the interchange rate for a business involved in the restaurant industry will differ from the travel or hotel service.
Interchange Fees Changing Over Time
Interchange fees tend to change over time -in some cases, twice every year. For instance, Mastercard and Visa are known to update the interchange fees semi-annually.
Payment Processing Fees
As merchants, you might also incur fees that are charged by the respective payment processors. Most payment processing companies out there do not have a cut of the existing processing fees. They usually go to the issuing banks as well as the card network. Rather, payment processors are known to charge a separate fee for processing payments. The fees for debit card processing will also vary based on the payment processing company you select.
On average, the interchange fee for debit card processing is considered as $0.44 for every transaction. However, the actual fees you will be paying will vary based on processing method, category of the merchant, card type, issuing bank’s size, and whether the customer is using the signature-based debit transaction or PIN-based debit transaction.