PIN and Signature Debit

I’ve done a few posts relating to debit card acceptance in the past. This post is designed to explain a little more about PIN and signature debit, why, and what business should be setup with debit acceptance.

PIN and Signature debit?

PIN Debit (Online debit) is the acceptance of a debit card where the card is swiped and a customer’s PIN number is transmitted to process the transaction. PIN debit can only be done through a credit card terminal or POS software system with an attached pinpad.

Signature debit (Offline Debit) is when a debit card is run as a credit card. This can be done over the internet, through a credit card terminal, or pretty much any way a credit card can be processed. Businesses inherently have the ability to accept debit cards using the signature method as long as they have a Visa or MasterCard logo on them. But, not all businesses are offered the reduced rate that is available for these types of cards.

Both signature and PIN debit are great ways that a business can save money on their credit card processing fees. PIN and Signature debit both have different interchange categories than credit cards and both will normally be cheaper than a credit card transaction if your merchant account provider offers reduced debit rates.

Details:

PIN Debit is normally a flat fee per transaction. No processing percentage no matter ho large the transaction is, just a flat fee for each transaction. Now the actual fee that you pay to process a PIN debit transaction is actually based on two fees. The fee from the processing bank (which includes the interchange fee) and the fee from the debit network provider (PULSE, STAR, etc.). These two fees are bundled into a single flat fee which is normally $.35 – $.50 per debit transaction. Technically there is a percentage and transaction fee for PIN debit, but the cap varies from $.30 – $.50 so for simplicities sake, this is almost always a flat bundled fee.

One of the drawbacks with PIN debit is that the majority of banks place daily debit limits for their customers, so if you have a high average ticket size (>$300), PIN debit may not be a good solution for you. Also, a business must have a pinpad encrypted specifically with the bank they process through for PIN debit to be possible. Pinpads can range from about a hundred dollars to over a thousand depending on the complexity of the pinpad.

PIN debit transactions are almost impossible to dispute because only the card holder knows the PIN for the card that is being processed. Normal chargeback rules do not apply for PIN transactions, and a customer must have an extremely good reason for a dispute to go through.

Signature Debit works on a fee structure similar to credit cards. A percentage of the transaction plus a transaction fee is paid on each signature debit transaction. While the percentage is normally lower than a credit transaction, the transaction fee is normally slightly higher than credit transactions due to a $.05 higher interchange fee. Signature debit offers reduced fees for all interchange and qualification categories so any type of business can benefit from a reduced signature debit rate.

A reduced debit rate is not always offered by default, so you may need to specifically ask to get a reduced rate. Also, advertising a debit rate instead of a credit rate, is one of the most common methods that processors use to lure customers that are shopping only on price. If you are offered some extremely low rate that ends up being a debit rate, make sure that your credit rate is not ridiculously high.

What is best for a business?

Any business will save on every PIN debit transaction where the sale amount is above ≈$20, when compared to a credit card. Businesses with very small ticket sizes (<$15) will probably pay a little more to the same for PIN debit transactions. Every business will save with Signature debit transactions, but a business’s merchant account must be specifically setup with a reduced signature debit rate.

A few things to look out for:

• Check for separate PIN transaction and debit network fees. The total cost for a PIN transaction should be ≈$.50, not $.50 for each.
• Make sure you aren’t being charged a percentage for PIN debit fees. I have seen a few times where a business was being charged the same fee for PIN debit as for credit cards.
• Check to see how much an encrypted pinpad will cost and make sure that the cost is justifiable for your business. You can purchase a pinpad from another company, but it will need to be encrypted with your processor before you can use it. A low-end pinpad will normally cost from $75 – $150 with an additional $20 – $50 encryption fee.
• Check for additional monthly debit access fee. These are normally $5.00 per month, but I have seen them as high as $20.00. In most cases they can be waived or reduced to $5 at the most.