Debit card issuance is on the rise in the United States, according to Visa and Mastercard. Visa reported a 16.5% increase in debit card issuance last year; Mastercard says debit card issuance rose 10.5% in the same period. Not surprisingly, both credit card associations also reported a substantial drop in credit card transactions and an increase in debit card transactions.
What does this mean for you, the trader? Well, with the use of more debit cards, you will see an increase in the number of your own customers who will present a debit card to pay at the register, instead of a credit card.
In today’s economy, many people have maxed out their credit cards or damaged their credit and can’t qualify for a real credit card. Then there is the growing sector known as “The Unbanked,” people who are not in the banking system, either by choice or because of credit problems. These people often carry prepaid debit cards purchased at check cashing stores, etc. They load cash onto the cards and use them like any bank-issued debit card. The cards bear the Visa or Mastercard hologram.
Debit cardholders can choose to have their card swiped as debit, which requires the customer to enter their Personal Identification Number (PIN), or to have their card swiped as “credit.”
Most merchants typically ask the customer, “Debit or credit?” This is not the way to save money on transaction processing costs. As most merchants know, it costs much less to process a transaction as a debit than a credit. Debit transactions do not run through the Visa or Mastercard interchange network and therefore bypass their fees. A typical credit card transaction could cost a merchant a transaction fee of 1.6% and 20 cents. To process that same transaction as a debit, the cost is typically 0.7% and 30 cents. The difference will average approximately $100 in savings per $10,000 in sales. (In this example, 1.6% would represent a transaction at the lowest level, known as Qualified. If the card has rewards, like cash back or airline miles, it would work as a Medium Qualified with about 2.7% or more A company or corporate or foreign card at 4% or more.)
So why would you leave the choice of processing to the customer? They don’t care, trust me. What you do each time you pick up a debit card is swipe it as debit and present the PIN pad to the customer so they can enter their PIN. If you ever have a customer who, for some strange reason, really prefers to run the transaction as credit, just hit the cancel button and swipe back as credit. Some prepaid debit cards have a cardholder transaction fee for credit pass transactions and I have met people who incorrectly believed their bank would charge them a fee for a PIN debit transaction.
Being proactive in this way can save you thousands of dollars a year, and with debit card use on the rise, proper debit card processing will become increasingly critical.
What is that you say? Don’t have a PIN pad? Well, contact your account executive with your merchant processor and order one today. They cost between $100 and $300 and are often available refurbished.
Many credit card terminals actually have a built-in PIN pad function, the customer enters their PIN directly on the keypad of their terminal. Check if your terminal does this.
One final note on savings when processing a debit card as debit versus credit. Depending on what your merchant service provider (MSP) is charging you for debit card versus credit card PIN-based transaction, there is a price below which you can save money by choosing to swipe a debit card as credit card. Example: You sell ice cream cones. The average sales ticket is $10 for a family purchase. To process as a PIN-based debit, the cost to you will be .70% plus 30 cents. That comes out to 7 cents and 30 cents = 37 cents to process as a debit. As a credit sale it would be 1.6% and maybe 15 cents, so 16 cents plus 15 cents = 31 cents. 6 cents less than a PIN-based debit sale. It’s not a huge difference for one sale, but multiplied by a month’s sales volume, it equates to quite a bit of money you could be wasting. You will have to run your own numbers depending on your own processing costs.
What is that you say? Not sure exactly what you’re paying to process plastic? Well, you have to find out!
My own company, the merchant services provider for which I am an account executive, offers a free analysis of your recent merchant account statement. We break down what you pay for the three tiers of credit cards (known as qualified, mid-qualified and non-qualified), as well as the various monthly fees that can be added, and we, side by side, show you what we propose to charge and what they might be. your final savings if you switch your business processing to us. All on one neat, easy-to-read page. Free. I have looked at many monthly merchant account statements in my time and most can be very confusing to the customer.
We are entering a cashless era in society and the ability to accept electronic payments (credit and debit cards, gift and loyalty cards, electronic check processing and more) is a crucial aspect of running your business, and managing the associated costs is simply good business. .