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James Hussher
Credit card merchant setup/sales
Fort Lauderdale, Florida
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The right way to accept debit cards in your business

Almost 100% of merchants ask, 'Debit or credit?' - Don't do this!
Written Mar 06, 2009, read 2663 times since then.
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As a merchant accepting plastic from your customers, you will take a mixture of actual credit cards and debit cards, also known as "check cards".  These two types of payment carry different costs to you as the merchant.  This article will discuss the various ways to process debit cards.

By regulation, a debit card can easily be differentiated from a credit card.  It says so, right above the Visa or Mastercard hologram on the front of the card. 

That information will help you process the debit card in the way cheapest for you.

As a professional in the credit card processing business, I tend to pay a lot of attention when I am standing in lines to pay for things.

Virtually 100% of the time, I see merchants process debit cards the wrong way.

They take the card offered by the customer, look at it, and (no doubt seeing the word DEBIT above the hologram) ask the customer, "Debit or credit?" 

They let the customer decide if they, the merchant, are going to pay to accept the card as a credit card at a rate from 1.5% and up...or have the customer input their PIN into the PIN pad and process the sale for half of that cost.

If the merchant is lucky, they will have their merchant account set up with a bankcard processor that does give them a break on checkcard transactions (run as a credit card, no PIN entered).  So they may pay 1.4%.

But by getting the customer to process the transaction as a PIN-based debit, they will pay about 0.75% to accept that card.

(Please note that all rates cited herein are approximate.  Further, all transactions usually do have a "per transaction fee of 10, 20 or 30¢ in addition to the percentages quoted.)

So, bottom line, if the customer elects "Debit" and enters their PIN number into your keypad, your cost for processing that transaction is cut in half.

You don't have a PIN keypad?  Contact your merchant account provider's account executive.  And shame on them for not having set you up with a keypad already.

"Debit or credit?"  Don't ask the customer anymore.  If you see DEBIT on their card, swipe it as debit and hand them your keypad to enter their PIN.  99% of the time, they will do so without argument or question.

I had a roommate who I would go shopping with, and when the clerk asked him, "Debit or credit?", he always said "Credit", because he had the mistaken belief that his bank charged him to use his card as debit, he was confused with withdrawing cash from non-bank ATM's.

Some customers will select "Credit" because then the funds are not immediately withdrawn from their account, just put "on hold" for several days before being deducted.

For my roommate, selecting "Credit" was a bad choice, because later that day he would go to an ATM, check his balance (waste of money) and withdraw cash that actually was supposed to remain in there to cover his "credit" purchases, and then he ended up with bounced checks and NSF fees for those credit transactions coming in and funds not being there.

So, overall, choosing "Debit" is better for the customer, and cheaper by far for you, the merchant.

As the sale amount increases, your savings to process as debit versus credit will increase.  Conversely, for higher-ticket items, consumers are more likely to want to finance them on an actual credit card, not have that transaction immediately deducted from their checking account.

Know the demographics of your customer base.  If you are located in a lower income area, chances are that the majority of your customers do not have credit cards.  They have their bank check card.  Debit city.

One note:  PIN debit transactions deduct the money from your customer's checking account immediately.  The transaction cannot be voided.  If a refund is required, you must process with the Refund key on your terminal or POS software.  Or give them the refund in cash, if you choose to do so.

Certain categories of businesses really do not use PIN debit.  Restaurants, for example, traditionally take the customer's card away from the customer for processing, so no PIN can be entered, although large restaurants have caught on to this missed savings and are now using wireless terminals to process payment at the diner's table (see my related article).

Hotels and car rental, and online, mail and telephone transactions cannot avail themselves of the savings for processing PIN debit sales.

Contact your Account Executive to get properly set up to accept PIN debit sales.

 

 

Learn more about the author, James Hussher.

Comment on this article

  • Graphic Designer + Idea explorer 
Seattle, Washington 
Jeff Barlow
    Posted by Jeff Barlow, Seattle, Washington | Mar 21, 2009

    Articles like this are really good for helping me keep balanced. I've spent years doing design work, and I do things all the time to help make the designer in me a lot stronger. But articles like this help me strengthen the BUSINESS part of me. Thank you.

  • Graphic Designer + Idea explorer 
Seattle, Washington 
Jeff Barlow
    Posted by Jeff Barlow, Seattle, Washington | Mar 21, 2009

    Articles like this are really good for helping me keep balanced. I've spent years doing design work, and I do things all the time to help make the designer in me a lot stronger. But articles like this help me strengthen the BUSINESS part of me. Thank you.

  • Art Dealer/ Gallery Owner 
Duvall, Washington 
Michael Nehl
    Posted by Michael Nehl, Duvall, Washington | Mar 22, 2009

    This is great advice! The only thing I would add is that you should look at the actual ways costs are charged. You may find that for smaller sales that credit cards are cheaper than debit cards. For me, the cross-over seems to be about $25 or so. This is because the fixed transaction fees on debit cards become a larger % of sale at smaller sales amounts.

  • Student 
Ann Arbor, Michigan 
Paul Coldren
    Posted by Paul Coldren, Ann Arbor, Michigan | Apr 27, 2009

    Your roommate might not have been mistaken. TCF Bank is the bank of choice for students at the University of Michigan in Ann Arbor, due to agreements with the University for advertising and free stuff to students when they open accounts account there. As a result, those little yellow Debit cards are ubiquitous on-campus and in the surrounding city. TCF charges its customers a fee (40 cents) for every debit card transaction processed as "Debit" (PIN) instead of "Credit" (signature). During account setup, the bank encouraged us to pay as "credit" to avoid this fee. Most people would get annoyed if their bank told them one thing but a merchant insisted something else (though both sides are just trying to pass the charges off to each other). If a merchant asked for me to pay as "Debit" (PIN), I always asked instead to pay as "Credit" to avoid this fee (sorry merchants!).

  • acountant 
Charlotte, North Carolina 
Chris Lonie
    Posted by Chris Lonie, Charlotte, North Carolina | Jul 27, 2010

    your post is quite interesting and it gave me very reliable and useful information.I like to read such valuable articles as it increase my knowledge. Thanks for your support.

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