PIN debit vs. Signature Debit
When is PIN debit cheaper than signature debit?
A debit card can be processed as either a signature or PIN-based transaction, and your business will incur different charges depending on which method you use.
- Signature debit / offline debit
- PIN debit / online debit
- Which method is cheaper?
- Durbin Amendment cap
A signature debit transaction is when you process a debit card by having your customer sign the sales receipt instead of entering her PIN number.
Processing a debit card in this manner causes the transaction to be routed through Visa, MasterCard or Discover's interchange instead of through a PIN debit network. For this reason, signature debit transactions are also referred to as offline debit transactions because the transaction is off the debit network's radar.
Depending on which card brand's logo is on the debit card, Visa, MasterCard or Discover's interchange fees are used to determine the charge for a signature debit transaction.
A PIN debit transaction is when you process a debit card by having your customer enter her personal identification number (PIN) using a PIN pad to complete the transaction.
Processing a debit card using a PIN causes the transaction to be routed through a debit network instead of through Visa, MasterCard or Discover interchange.
In the case of a PIN debit transaction, the debit network through which the transaction is routed will determine the charge for the transaction.
Signature debit transactions are less expensive than PIN debit for businesses with smaller average tickets. PIN debit transactions are less expensive for businesses with larger average tickets.
The reason for the difference comes down to the fee structure of signature versus PIN debit transactions. Signature debit transactions have higher percentage-based fees and lower transaction-based fees, while PIN debit transactions have lower percentage-based fees and higher transaction-based fees.
This difference in charges is mainly due to the processor's markup that is applied to each type of transaction.
In the case of a signature debit transaction both a percentage-based and transaction-based markup is applied by the processor.
For example, let's assume that a business used CardFellow to find a competitive credit card processing service with interchange plus pricing, and their rate is 0.15% plus $0.10. In order to calculate the business's fees to process a Visa branded signature debit transaction, all we need to do is add the processor's markup to Visa's debit interchange fees which are currently 0.80% plus a $0.15 transaction fee. This gives us a total charge of 0.95% plus a $0.25 transaction fee.
In the case of PIN debit, a processor only applies a single transaction-based markup to the transaction. For example, a typical PIN debit fee is something like $0.12. In order to figure out the final cost of a transaction, all we need to do is to add the processor's markup to the fees charged by the PIN debit network that handles the transaction.
For example, Interlink's current network fees are 0.80% plus a $0.185 transaction fee. If we add Interlinks's network fee to the processor's markup, we arrive at a total fee of 0.80% plus a $0.305 transaction fee.
The Durbin Amendment to the Wall Street Reform and Consumer Protection Act has capped debit fees at 0.05% plus a $0.21 transaction fee for banks with assets of $10 billion dollars or more. Banks with less than $10 billion in assets have not had their fees capped. The rates used in the examples above assume that unregulated debit cards were accepted.
The Durbin Amendment has caused the card brands to create two sets of fees: one for regulated card-issuing banks, and another for unregulated card-issuing banks.
More information regarding debit card transaction fees can be found by following the previous link.