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Why Credit Cards and Debit Cards Have Different Transaction Costs

Paper or Plastic is not just a question for those in a grocery checkout. Debit and credit card transactions make up a majority of the transactions in the modern economy. Fewer people than ever have cash on hand for transactions, preferring to swipe and go rather than handle hard currency. This change has forced many retailers who had not taken these cards in the past to reconsider, with many opening merchant accounts with the myriad of credit card processing companies. While this does provide a convenience for the consumer, there are several things merchants and retailers need to keep in mind.

First, while both cards may use the same credit card processing networks, the charges issued to the merchant accounts that are using them are not. Most debit card transactions take place using a numerical pin code. Most debit transactions done this way are electronic and nearly instantaneous, quickly transferring money to a merchant account. The fees charged to merchants for these transactions can be as low as 10 cents per transaction. However, if pin isn’t used, debit card transactions are processed like traditional credit card transactions.

Credit card transactions can be much more expensive for a merchant than debit card transactions. Whereas the fee for debit cards is usually a set fee per transaction, credit card companies usually charge a percentage fee for every purchase they process, often upwards of two percent. These higher costs for merchants have led to some only allowing credit cards to be used when a purchase reaches a certain amount, say five dollars or so. Some consumers took these new rules in stride. Others, however, have complained to the credit card companies, who brought to the merchant’s attention that it is against the many of the agreements they signed to mandate a minimum purchase amount.

While many merchants are rubbed raw by the larger fees charged by credit card companies, there is not a whole lot they can do. They can either add the cost to the products they already sell, or they can refuse to accept the cards. Those that refuse often regret their decision. Often the costs and hassles of accepting credit cards are more than offset by the sales the merchant is allowed to make from those whose sole currency is plastic.


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