Using Debit Cards as Credit Cards

A few weeks ago, my wife upgraded her cell phone with our provider. The phone she selected came with a $50 rebate which sounded good to us. The rebate, we discovered, was to be issued in the form of a Visa prepaid debit card. All sounds good so far but here's what I discovered when the card came in the mail today.

You see, to the every day individual, this wouldn't be any big deal but as an individual involved in the processing business, here's what I want to tell you about. You see, with banks, it's all about fees. That's how they generate the majority of their income rather than interest on loans. Anyway, this "prepaid debit card" was issued by a Visa member bank (a large one at that). Okay back to my reason for this post.

The Visa card, clearly marked "debit" on the front also had a sticker plastered prominently on it as well. Here's what the sticker said "Always choose "CREDIT" when using the card for your purchases". Here's what happens when the customer requests that it be processed as a "CREDIT". You, the merchant, will be charged your "discount rate" from your provider at whatever you are being charged for swiped Visa DEBIT transactions. Of that amount, this issuing bank will receive the Interchange Rate on this card that is being processed as a CREDIT card. Currently, on this $50 sale, the issuing bank will earn close to $.70. You, on the otherhand will likely be paying somewhere in the neighborhood of $1.00 to process the sale.

Now, if you had processed it as a pinned DEBIT card, your cost would have been probably in the neighborhood of $.60-$.65. And, processed as a pinned DEBIT card, do you know how much the issuing bank makes? Zero, Zilch, Nada! Are you beginning to see why the issuing bank put such a sticker on the card? Many banks that issue Visa or MasterCard branded debit cards, try to encourage their card holders to "just say CREDIT" for what are now, obvious reasons. To the cardholder, it really makes no difference because the funds simply come directly out of their account no matter how they run it. The diffenence is in how much it is costing you for the process.

So, while this may only translate into minimal amounts on individual transactions, it will certainly add up to something significant over a period of months or years. So, the lesson to learn here is that when you take a card for payment, that says DEBIT on it, do all you can do to get the customer to enter their pin number.



Good luck and I wish you much success in your business. If you have any comments, or questions, please post them here.