On-Line and Off-Line Debit Suggestions

As I'm sure you're aware, there are two ways to process debit transactions (on-line and off-line). Each would come with it's own specific rate structure. Here is an explanation of the differences and a suggestion on how you may capture more at the best rates possible.

Online/PINed Debit
PINed Debit transactions, facilitated primarily by ATM cards, require the use of a personal identification number (PIN). Once the card has been swiped through the POS terminal, the cardholder will be prompted to enter their PIN prior to completing the transaction. The transaction is then routed through the appropriate regional or national EFT network for validation, including availability of funds, and processing of the payment and the appropriate transaction fee for that network is charged to the merchant. No signature is required from the merchant and the funds are deducted from the cardholder’s account immediately. PINed Debit transactions are considered more secure and a lower risk for the merchant because they require PIN entry for authorization.

Offline/Signature Debit
Signature Debit transactions require that the cardholder sign a receipt. Signature Debit transactions are processed using the Visa or MasterCard networks and are subject to the interchange fees associated with these networks. Availability of funds is not verified for offline debit transactions. The purchase amount is deducted from the cardholder’s checking account and is reflected on the cardholder’s account statement from their Financial Institution.

Now, let's take a look at some average pricing differences between how they could be routed. We'll use a $50 transaction since at this level, and below, there is a high incidence of debit cards being used at POS nationwide.

Offline Swiped on 4 Tier Pricing at 1.49% + $.25 = $1.00
Offline Swiped on 3 Tier Pricing at 1.79% + $.25 = $1.15

Online Swiped utilizing PIN thru NYCE network
Current Rates are $0.1375 + 0.65% = $.17 + (processor fee of approx $.15) = $.61
NYCE has a CAP Maximum of $.6875

Online Swiped utilizing PIN thru STAR network
Current Rates are $0.1925 + 0.75% = $.23 + (processor fee of approx #.15) = $.72
STAR has a CAP Maximum of $.6925
NOTE: Keep in mind the above maximums relate only to the Network fees and do not
include the processor fee. So, in the example for the STAR network, on this $50 sale, their fees would be $50.00 x 0.75% + $.1925 = $.5675 or $.57

So, you can see from the above example, it would be a cost savings to capture as many Online Pinned debits as possible. Here's the error I see most merchants and their employees make. If they ask the customer at all, it tends to go like this...."credit or debit?". You're giving the customer the option but hey, whose paying the fees anyway, you or them? When a customer hands you their debit card, they know full well there is enough money in their account to accomodate the sale. Just because most all debit cards have a Visa or MC logo on them does not, and never will, mean that it is a credit card. IT IS A DEBIT CARD! The only questions that remains is if the customer actually knows their pin number, and most do.

Many banks that have issued branded (Visa/MC) debit cards have encouraged their cardholders to "just use them like a credit card". In other words, they are telling them that they don't need to use their pin number. Why do you suppose they are doing that? More fees for them, of course. You see, when the customer doesn't use their pin number, the bank (as the issuer) earns interchange (currently Visa @ 1.03% + $.15 or $.67 and MC @ 1.05% + $.15 or $.68). So, if you capture the pin number, you save on fees and the banks earn ZERO. Don't you feel bad for them now? When the pin number is used, the appropriate EFT Network (STAR, NYCE, Pulse, etc) earn the fees.

Here's a suggestion for you to possibly enable you to capture more pinned based debits and save on fees. Every debit card will say on it "debit", "check card", "money card" or something similar. When you, or your employee, takes a card from the customer, simply look at the face of card. If it has any of the words indicated previously, simply say, "I'm going to need you to enter your pin number in a second". Then pause a second and if they don't object or say they don't know their pin number (which is rare), select "Debit" on your terminal, and the PinPad will beep at them and prompt them to enter their number (of course you need a PinPad or a terminal with built in PinPad to accomodate this transaction).

Typically, customers don't know that there is a cost difference to you, the merchant, in how you process their cards. In fact, many customers don't know it cost you anything at all for accepting their credit or debit cards. Because of the continuing increase in processing fees, some of my merchants have put up signs such as: "for your protection and for reduced processing fees to us, when using your debit card, we appreciate the input of your pin number", or something of that nature.

Hopefully, this has been helpful in furthering your understanding of debit card processing and the associated fees. To further your education in the credit card and debit card processing world, please visit my website at: http://www.creditcardprocessingknowledge.com/