PIN vs. Signature Debit Payment Processing

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We often hear, “isn’t accepting debit cards exactly the same as accepting credit cards?” The short answer is: no, they are actually quite different. Sure, you are accepting a piece of plastic and running it through your payment terminal, but the behind the scenes processing between credit and debit cards can make a huge difference for your business. While it may not be the same apples to oranges comparisons, processing debit payments with a PIN vs. accepting debit payments with a “signature” can also have a material impact on your business.

With this in mind, today we will discuss the similarities and differences between accepting debit cards with a PIN and accepting debit cards with a signature, the costs and fee structures of each, and review some other key considerations when processing debit cards.

PIN vs. Signature Debit Card Payments

PIN vs. Signature Debit Card Payments

Most of us are familiar with the question: “debit or credit” when paying with a debit card. What we really should be asking is: “PIN or signature?” This “debit or credit” question is a misnomer because the payment is being processed as a debit transaction regardless. Yet there are a few key differences between the two, including:

PIN transactions flow through the debit networks

Perhaps the biggest difference between PIN and signature debit card purchases is the payment networks in which they are processed. Debit card networks, AKA electronic funds transfer (EFT) networks, are wholly separate from credit card networks, and the payments are essentially processed as a digital check. Examples of debit card networks include STAR and Interac. PIN purchases are also considered more secure from outside threats of theft and fraud.

Signature debit transactions flow through the credit networks

When customers choose “credit” AKA “signature” based debit card payments, those flow through the credit card network which is backing the card. In other words, these are routed through the same networks as a credit card purchase, but still as a debit transaction. This type of transaction is also sometimes known as an offline debit transaction.

As a brief aside, these types of prompts are not well understood by customers and are part of an increasingly confusing set of prompts that sometimes bog down purchases. Businesses should strive to implement the hardware and software necessary to make sure that customers are having a pleasant, secure, and straightforward experience when making debit and credit card payments.

Understanding Fee Structure of Debit Card Payments

Understanding Fee Structure of Debit Card Payments

Now to the good stuff: which is more cost-effective for small businesses between PIN and signature debit transactions? The answer depends largely on the nature of your business. It is generally true that businesses with smaller transaction values will be better off choosing signature debit processing. Conversely, businesses with larger average transaction values will typically benefit from going with PIN debit processing. Here’s why:

Signature debit transactions generally carry higher rates but lower flat fees. In other words, the percentage being taken off the sales price is higher, but the per-transaction fees are typically lower. Meanwhile:

PIN debit transactions frequently do not charge a percentage but do charge a higher flat fee. It is common for payment processors to charge only a flat, per transaction fee for PIN debit transactions. This is why lower volume, higher-value businesses are almost certainly better going with a PIN-based debit system when possible.

Other Considerations When Processing Debit Cards

Other Considerations When Processing Debit Cards

There are a few other considerations before making a business decision to opt for PIN or signature payment processing, including:

  • The risk of chargebacks: while some customers will push the issue of a chargeback regardless, there is no question that businesses are more protected from chargebacks for PIN debit purchases.

  • PIN purchases allow for cashback: as a convenience to your customers, PIN debit purchases also allow you to offer cashback as an amenity. Small differences like this can lead to better customer experience, and improve business overall.

  • PIN purchases settle much more quickly: PIN debit transactions frequently settle the same day or the following day. Signature debit purchases more commonly take several days for the money to actually hit your account.

  • Details of your merchant service agreement: it is always wise to understand the terms of your merchant service/payment processing agreement before making any decisions. As with so many payment processing topics, working with a reputable payment

True Merchant Offers Comprehensive Debit Card Processing Options

True Merchant is a Better Business Bureau accredited merchant services company that focuses on helping small businesses. We understand that the details of processing debit card and credit card payments are often the last thing on business owners’ minds. That is why we offer transparent, fair pricing models for our top-notch services including CardSecure, NFC payments, online payment solutions, and much more!

To learn more about how True Merchant can help your small business, please contact us today by calling or filling out an online form. One of our qualified merchant services professionals will be happy to get you started.