PIN Debit or Signature Debit: Which Costs Less?

At face value, both PIN debit and signature debit transactions look the same. They are both conducted on a debit card, so what’s the difference?

The truth is there are some big differences when it comes to cost. How you process debit cards can have a large impact on your bottom line. Most businesses aren’t aware of this and end up throwing money out the window. Here’s what you must know.

What is a PIN Debit Transaction?

A PIN debit transaction occurs when the customer enters their PIN into the credit card machine. Only they know the PIN and if they enter it incorrectly, the transaction won’t go through. The transaction doesn’t go through a credit network like a credit card does. Instead, it goes through a debit network. 

With a PIN debit transaction, the debit network ensures there are enough fees for the transaction to go through. If there are not enough fees, the transaction is denied.

What are the Processing Fees?

Unlike credit card transactions, PIN debit transactions don’t have interchange fees because they go through a different network. One downside, however, is you can’t choose the debit network the transaction goes through, so you’re at the mercy of the fees charged by the appropriate network.

PIN debit transactions have a PIN debit network fee plus a processor markup. The fee is a percentage of the sale (which is usually lower than the credit card interchange fee) plus a fixed markup for the processor. 

What is a Signature Debit Transaction?

A signature debit transaction operates like a credit card transaction. The customer slides or inserts the card and signs for the purchase. He/she does not enter their PIN into the credit card machine.

Most merchants call this ‘running a card as credit’ or when the customer chooses the option at the credit card machine, they’ll choose ‘run as credit’ versus ‘run as debit.’ Unlike a PIN transaction, these transactions do not go through the debit network. Instead, they go through the credit network and are subject to interchange fees.

How Processors Markup Debit Transactions

Just like credit card transactions, processors mark up the transaction to take their cut. They have three ways to do this and understanding the lingo is important to help you decide.

  • Interchange plus – This is the most transparent pricing method. You pay the interchange rate plus a predetermined markup. 
  • Subscription-based pricing – You pay a flat monthly subscription fee no matter how many transactions you conduct plus an interchange fee per transaction (usually $0.15).
  • Flat-rate – This is the least beneficial method. You pay a flat rate for every card, no matter the type plus a markup that can be between $0.20 – $0.30. The flat rate is usually much higher than the interchange plus method.
  • Tiered – This leaves the transaction costs up to the credit card processor as they create their own tiers for qualified, mid-qualified, and non-qualified transactions and requires a lot of research to determine what costs you might pay.

What are the Processing Fees?

Signature debit transactions have similar fees as credit cards. If you notice on a customer’s debit card, there is a network branded on the card (Visa or Mastercard). You’ll pay the appropriate interchange fees for that brand for signature debit transactions.

To process a signature debit transaction, you’ll pay the credit card brand’s interchange fees plus the markup for the debit transaction. The markup is both a percentage of the sale plus a flat rate markup.

The Largest Benefit of Accepting Debit Transactions

Debit transactions have many benefits, but the largest is the lower risk of chargebacks. With a credit card transaction, chargebacks or disputes are common and almost easy. Credit card networks give retailers 2 weeks to respond to a dispute and if they don’t, the credit card company automatically sides with the customer and you get a chargeback.

With a debit card, it’s not that easy. The dispute process is much more involved and rarely sides with the customer if they processed the transaction as a PIN transaction since it’s more likely that the customer did make the transaction. 

Lower chargebacks can lower your overall costs and allow you to accept credit cards and debit cards easier.

How to Lower your Debit Card Transaction Costs

You want to accept debit cards because it’s another way to get more customers, but you also need to watch your bottom line.

Just like credit card processing fees, though, you can negotiate your debit card transaction costs. If you do your research, know your terms, and know what’s average for your area, you can negotiate with processors to get the most attractive pricing. 

Another great way is to choose one method – PIN or signature so you know your processing fees and can keep track of what it’s costing you. Your employees will have less of a learning curve when learning the system and your customers will always know how they can process their debit cards at your place of business.

Final Thoughts – Which Costs Less?

The bottom line is there isn’t a rule regarding which costs less – PIN or signature transactions. It comes down to your average ticket amount. If you have higher ticket transactions, you’re better off with PIN transactions for the most part because you’ll pay a lower percentage per sale and a fixed markup.

If you mostly have lower tickets, you’ll be better off with signature transactions because you’ll pay a higher percentage, but lower markup. A higher percentage of a lower ticket isn’t as big of a deal as it is with a higher ticket. 

What is right for your business depends on your business model and the processor you choose. Do your research, negotiate your prices, and see what works for you, but always read the fine print so you know all the details involved.

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