Debit Card Processing

Debit card processing follows the same basic steps that credit card processing does however the way funds move and the networks involved are different depending on what type of debit card is utilized.

(Click here to go back and review Credit Card Processing)

Offline “Signature” Debit vs. Online “PIN” Debit

When it comes to debit card processing there are two types of debit cards.

  1. Check Cards (Signature Debit)
  2. ATM Cards (PIN Debit)

However, today many banks issue cards tied to a checking account that can be both of these and thus these are really two types of transactions and are treated differently on the interchange and have different rules for issuers & acquirers as well as for merchants and cardholders.


Signature “Offline” Debit Transactions

Offline DebitAs mentioned above these cards are also known as check cards and are branded by Visa/MasterCard as well as the issuing bank.  These cards run along the normal credit networks and thus no pin pad is required.  Instead a signature is used to verify the purchase.  In online eCommerce environments this is achieved through the use of CVV (3 digit code on the back of the card) verification.  What most merchants do not know is that these cards represent 35%-60% of Visa/MC transactions and hold a lower cost on the interchange.  These means that if the merchant’s processing contract with the acquiring bank has the same flat rate for Credit and Debit, the merchant is overpaying on a 35%-60% of their transactions.

This type of flat rate or “tired” pricing is very common in the industry and was designed to help simplify the interchange fees for the purposes of daily implementation by the merchants.  The problem is that even though it is simpler to remember only a few rates, it is more costly.  Interchange carries over 300 different types of transactions with the lowest below 1%.  If the merchant does not have a “pass-through” pricing structure they are typically missing out on big savings.


PIN “Online” Debit Transactions

Online DebitThese are the traditional ATM cards that require a PIN.  For combo cards a PIN must be used to access cash back. This type of transaction is only widely used in physical establishments although recent advancements in technology are pushing towards an online equivalent.  These transactions are very secure and cardholders have virtually no charge-back rights.  It also requires for funds to be available in the cardholder’s bank account thus lowering risk to the issuer.  PIN debit transactions are ran on a separate network  that is just as complex as credit however is less costly.  Although interchange rates are lower, there is typically a higher transaction fee due to the separate network access.


Making the Choice

In today’s card acceptance environment the question is not which type of debit card to take,  it is rather or not to process PIN “online” debit transactions.  Although less expensive from a percentage standpoint, with a higher transaction rate, PIN debit does not make sense for low ticket items or for merchant that average tickets are normally lower than $50.  This is not a hard number and varies on each transaction depending on the type of card, method acceptance and what fees the merchant has negotiated with their processor.  However it is a good rule of thumb for most merchants to go by.  The other element to consider is the purchase of a stand alone PIN pad so that consumers can input their PIN in private.  For some businesses this is simply not feasible, such as restaurants.


Designing the Right Process

Total Merchant Network can do the math for you and develop the process that is best suited to your business needs.  If you are not currently on interchange “pass-through” pricing or are not sure, contact us for an in-depth look at your statements to ensure you are maximizing your savings.  If you are getting ready to start a business and are debating rather or not to invest in the hardware necessary, we can help you decide with our industry knowledge and years of collected data.


Contact Total Merchant Network today for a free 30min preliminary needs analysis to help determine the right solution for your business.  Call us at 866.382.2819 or Click Here.

If you are ready to apply for merchant account to process credit / debit cards click here