Debit Card Processing

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Gone are the days when cash was the only mode of payment. With new developments in technology, many customers prefer to use cashless modes of payment. For the longest time ever, credit cards have been the most common mode of cashless payment. Recently, however, debit cards have narrowed that gap and are gaining on credit cards as a popular mode of payment. This article will tell you all you need to know about debit cards- why they’re popular, debit card processing methods, and other crucial information about them.

What Are Debit Cards?

A debit card is a payment card issued by a financial institution like a bank that you can use to make secure and convenient purchases in person or online. Debit cards draw money directly from your bank account.

This is where they differ from credit cards, which let you make payments with money borrowed from the financial institution. When you use a credit card, you’re using the credit provider’s money. They pay for the item, then bill you for it. At the end of the month, you repay the amount when they send you a statement. If you fail to pay the full amount, you pay interest on the portion left.

Debit cards started out as plain ATM cards which you would use to withdraw cash from an ATM machine. Most banks now issue ATM cards that can also be used like debit cards to make cashless payments both in-person and online. Debit cards have made life much easier for consumers for a number of reasons. If you haven’t enabled debit cards as a mode of payment for your goods or services, here’s why you need to do it ASAP.

Why Consumers Use Debit Cards

  • Security

Before debit cards came up as a mode of payment, customers who didn’t have credit cards had to withdraw money from their bank accounts to make payments directly in cash. This of course presented security problems, especially if you needed a lot of money. Debit cards are a more secure mode of payment as the customer no longer has to carry large amounts of cash to make a purchase. Debit cards are also secured with a Personal Identification Number (PIN), so even if they get lost, you just need to notify the bank to block it and the money in your account is still safe.

  • Convenience

Debit cards allow the customer to make and pay for purchases online, so they can shop from the comfort of their homes.

  • Expense Tracking

Customers who like to track their finances no longer have to make tedious lists of purchases daily and add them up at the end of the month. Financial institutions provide applications that keep track of all purchases made which the customer can access at any time.

  • Saves Money

While credit cards require annual membership fees and charge for late and over-the-limit payments, debit cards require no such payments because the customer is using their own money. In addition to this, there’s also a lower risk of overspending, as debit cards only allow customers to spend only what is in their account.

  • Lower Risk of Running into Debt

Because debit cards only allow cardholders to spend what is in their accounts, the cardholders have lower chances of running into debt, while credit cards allow them to spend more than they can afford at that moment, up to a pre-approved amount. If one isn’t careful, this can lead to debt.

The Process

When a debit card is entered into the terminal, the processor needs to determine whether there the customer’s account has enough money to complete the transaction. The information in the card is read and sent to the customer’s bank to be verified. The bank will verify if the account has enough funds, and will either allow or deny the transaction depending on the availability of funds.

The bank will also run a security check. If everything is ok, the transaction will be approved and payment can go ahead. The verification process protects you as a merchant throughout the transaction. Once the transaction is approved, the money is taken out of the customer’s account in any of these three ways.

PIN Debit

Every card comes with a Personal Identification Number (PIN), which protects the cardholder, the bank, and the merchant from fraud. The customer inserts their PIN into the terminal, which takes the card through the debit card processing network. The money is then taken out of their account to pay for the goods or services.

Signature Debit

The customer signs a receipt or a touch screen at the point of sale. This routes the card through the credit card processing network like MasterCard or Visa instead of the debit network. The money is placed on hold for one to three days, after which the amount clears and the customer is required to sign for the purchase.

Contactless Debit

The customer waves or taps the debit card, mobile device, or smartwatch over a Near Field Communication (NFC) terminal, which communicates with Radio Frequency Identification Technology (RFID) in the device or card. The transaction is routed through the debit network like a PIN debit purchase.


Debit Card Processing Fees

When you set up an account to accept credit cards, debit cards will come as part of that. Make sure to ask your processor about the different fees associated with debit cards as opposed to credit cards.

Debit card processing typically comes at a cost because it involves third-party service providers. No doubt as a merchant you would want to incur the lowest possible costs and maximize your profits. Processing fees are also known as interchange rates and they depend on a number of factors:

  • Transaction size– Large transactions incur higher fees than smaller transactions.
  • Whether or not the debit card is regulated– If the bank issuing the debit card has over 10 million dollars worth of assets, it is referred to as regulated. If the assets are worth less than 10 million dollars, the bank is unregulated. Regulated debit card fees tend to be lower than unregulated debit fees.
  • Whether the customer uses PIN or signature debit– Generally, PIN debit is cheaper than signature debit for large transactions, while signature debit transactions attract lower costs for smaller ticket sizes.

Debit or Credit: Which is Cheaper?

Between credit and debit cards, debit cards attract lower costs for the business. The average cost of debit card processing is 24 cents, while a credit card payment will be more expensive and could cost about 2% of the cost of the purchase in addition to 10 cents for every swipe.

How to Minimize Debit Card Processing Fees

Debit card processing fees are inevitable because many consumers prefer to use cashless payment systems. Still, that doesn’t mean that you can’t try to spend as little as possible on them. Here are some things you can do to keep your debit card processing fees down.

Use an interchange plus method- Processors on this pricing method pass through the rate of the debit/credit card itself. because debit cards have lower interchange rates, your overall fee will be significantly less.

Prompt consumers for the debit card PIN– We’ve seen that PIN debit transactions tend to be cheaper for larger transactions, so it’s in the interest of your business to make sure your customers use the PIN debit system rather than signature debit. If the first thing they see before making the payment is a prompt for the debit card PIN, they’re more likely to use PIN debit.

Use a network with good rates for your type of business– Select a network that will give you lower transaction rates, making sure to keep an eye on annual fees and switch fees which can change at any time.

Select a good payment processor for signature debit transactions– Even if your preferred mode of debit card processing is PIN debit, some customers will still insist on using signature debit. To avoid losing them, look for a payment processor who can give you a good deal for your signature debit transactions.



Debit Card Processing costs are inevitable for most businesses today. The trick is to navigate them in such a way that you lower them as much as possible. Use this article as a guide if you have been looking for comprehensive information on how it works and what are the requirements.


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