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May 10th, 2007 by Jamie Estep

PIN and Signature Debit

Filed in: Merchant Accounts | 3 comments

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.

3 Responses to “PIN and Signature Debit”

  1. May 16, 2007 at 9:22 am

    This article is dead-on and very educational. I’d like to point out that while some companies sell flat debit rates, merchants with even the smallest ticket environments can benefit from an “Interchange Plus” pricing structure. For example, Interchange On Star—one of the nation’s largest networks—is .65% + .12 (interchange-max of $0.60) + .01 (acquirer fee) + .0325 (switch fee). Add the authorization fee the processor charges (say $0.25) and you have a maximum fee of $0.6425 + $0.25 = $0.8925. While this may be higher for some transactions compared to a flat $0.50, look at a $10 transaction… it is only $0.47. “Interchange Plus” pricing essentially makes any PIN-based transaction less expensive than signature debit transactions, regardless of ticket size, and is generally a much better pricing structure than a flat per transaction fee.

    Merchants can also benefit from debit cards because they can offer cash back to clients. Merchants can include this offer when customers use PIN debit to increase floor traffic and conversion. Additionally, merchants can surcharge for the use of PIN debit transactions—this is not possible with regular credit cards.

    I was at a gas station in California once that took advantage of these debit benefits. The gas station didn’t accept credit cards; they only took PIN-based debit and charged $0.50 for it. So you could offer PIN debit to pay for items @ no cost and offer cash back for $1.00. That’s far less than the customer would pay using a foreign ATM @ $3 plus their bank fees. Imagine the possibilities.

    Douglas J. Mack, president of OHMS, Inc., has over 11 years of experience in the Merchant Service industry. He is a small business advocate and an active member of his local business community in Columbus, Ohio. He is an advisory board member for the Green Sheet and has been featured in a number of industry related publications. Have a question for him? You can reach Doug at 888.708.8948 x104 or via e-mail at dmack1@cpsoh.com.

  2. Sarah
    July 29, 2009 at 7:16 pm

    Given the rise of compromised and fraudulent PIN debit transactions, how can you claim that “PIN debit transactions are almost impossible to dispute because only the card holder knows the PIN?” PIN skimmers have appeared at ATMs and merchant locations (e.g. Stop & Shop grocery stores) alike, and malicious software has been found in large ATM networks. If your anti-fraud system is based on pretending the PIN is always secure, then your system is wide open to compromised Point of Sale equipment, ATMs, and other compromised devices nearby. Not to mention anyone involved with the creation or distribution of PINs, including the mail system, can obtain the PIN. Even a simple camera or good set of eyes can record the few digits in a PIN being entered, so it is preposterous to suggest that only a card owner will ever know the PIN. How does a card owner know that the equipment collecting their personal identifiable number is trustworthy? She can’t. At least with PIN-less debit, fraudulent transactions can be disputed, they often have a no-fraud guarantee, and the cardholder isn’t providing highly sensitive information into a questionable point of sale device.

  3. John Mertz
    October 27, 2009 at 7:38 pm

    The idea that merchants pay a flat fee for pin debit is no longer true. While most networks do cap their interchange, Interlink, for instance, for Retail transactions charges 0.0075 plus $0.15 – with no cap. Pulse doesn;t have a cap, either.

 

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