Since they were first introduced, debit cards have undergone a number of changes. One of the biggest changes is that debit cards have become nearly indistinguishable from credit cards, in that most of the time, consumers can choose whether or not to enter their PIN number or simply sign to authorize the transaction. This determines how the transaction will be processed. Due to recent changes in the law, it also determines the fees that the merchant will pay through the credit card processing company it contracts with.
From the customer’s standpoint, there is little difference in choosing a PIN debit or signature debit transaction. The funds are still immediately reserved in their bank account to pay for their purchase, so for the consumer, it really comes down to protecting their PIN number whenever possible. However, for a merchant, the fees for these transactions can differ significantly, which could play into your decision about the types of transactions to offer.
The fee difference results in the manner in which these two types of transactions are processed. PIN-based transactions are processed through the bank network of the card issuer. The fees you will be charged through your merchant accounts depend upon the size of the PIN network used, the amount of the transaction and your merchant category, along with other less well-known variables.
Signature-based debit transactions are processed in the same manner as credit card purchases. The transaction is routed through the VISA or Mastercard computer network, meaning it is subject to their network interchange fees. Those fees are determined by such factors as the size of the bank that issued the card, the amount of the transaction and whether or not the card is presented at the point of sale.
Until recently, merchants were required to accept all cards, with no way to determine if the card was a debit or credit card. Until the fees were charged by the credit card processing company into your merchant accounts, it was difficult to know how much you were paying in fees. Changes to federal law now allow merchants to choose which, if any types of payments they will accept and therefore gain more control over the fees they will be charged. It is also possible to determine what type of card is being presented, so it will be easier to figure out merchant accounts fees.
Working with your credit card processing company, you can figure out how much you are paying in fees for both PIN and signature debit transactions. This can help you determine what types of payments you will continue to offer your customers. Knowing these differences will help you make informed decisions about your business operations, rather than having to react after fees have been assessed.