PIN Debit vs. Signature Debit
Which is cheaper, PIN debit or 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. A rough rule of thumb is that PIN debit transactions are cheaper for businesses with larger average transactions and signature debit is cheaper for businesses with smaller average transactions.
- Signature Debit / Offline Debit
- PIN Debit / Online Debit
- Which method is cheaper?
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. It's sometimes referred to as running the card "as credit" but it's still considered a debit transaction.
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.
View PIN debit network fees.
Which method is cheaper?
As noted in the introduction to this article, 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 also 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.
Durbin Amendment Cap
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 (cards issued by banks with less than $10 billion in assets) 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.
Pros and cons of the Durbin Amendment can be debated, but for now, it's important to know how it affects your business. A downside to the amendment is its effect on businesses with small average transactions, those under $10. Because many consumers use debit cards for small transactions and many debit cards are subject to the regulated debit interchange rate, the 21 cent transaction fee takes a proportionally larger bite of the total.
Related Article: Small Tickets - The Durbin Downside.
Costs aren't the only consideration when deciding whether to accept debit. The possibility of cutting down on chargebacks may also appeal to some businesses. While it's possible for a customer to initiate a chargeback on a debit card, it's typically a more cumbersome process than initiating a chargeback on a credit card purchase. Additionally, banks will not usually side with a customer during a chargeback if the transaction was completed using a PIN. That can cut down on instances of "friendly fraud," or fraud where a cardholder fraudulently claims that they didn't make a purchase that they actually did make.
Some businesses may wonder if they can choose to take only debit. If you decide that you'd like to accept only debit cards, your processor can help you set that up through the card brands' limited acceptance programs. However, there are some purchases for which customers prefer to use credit, so be sure to carefully consider the pros and cons of such options.
Read more about Limited Acceptance for Credit or Debit Cards.