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The True Cost Of Debit Card Transactions

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Frank Kehl

Frank Kehl

Frank Kehl has been writing about merchant services, payment gateways, and international money transfer services since 2015. He has a Bachelor of Science degree from Penn State and a Juris Doctorate from the Ventura College of Law. After a long and enjoyable career of traveling around the world as an Air Force navigator, he’s comfortably settled down in the wine country town of Paso Robles in California’s scenic Central Coast region. He enjoys reading, photography, hiking, and numerous other outdoor pursuits.
Frank Kehl
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9 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    John crampton

    I receive a monthly bill from a merchant that is usually around $100.00. They recently began charging $3.00 for a credit card transaction. Isn’t that a step backwards in technology? One would think the manual labor to handle checks would be more costly?

      This comment refers to an earlier version of this post and may be outdated.

      Janice

      I use my Health Savings Account debit card to pay any medical fees. Are banks allowed to charge for debits from an HSA? I lost $75 recently on an expensive specialist dental procedure because I was not paying with “cash or check” so did not qualify for the “cash the same day” discount they offer patients. I was told that even though the debit is from an HSA , their dental office still pays the bank a fee. However, my regular dentist accepts my debit as cash and I receive the cash discount she offers.

      I am solving the problem by having my bank print me up some checks now. Guess the old-fashioned way still works.

        This comment refers to an earlier version of this post and may be outdated.

        Jessica Dinsmore

        Hi Janice,

        Unfortunately this reaches outside of our expertise, and we are not qualified to answer this question.

          This comment refers to an earlier version of this post and may be outdated.

          Anthony O.

          I’ve been in the credit card processing industry for over 8 years, and I hear this question a lot from my clients, usually after they’ve been approached by another company. A lot of sales reps out there will try to convince you that pin-debit is cheaper, but they’re really just trying to sell you another piece of equipment that you will end up costing you more money. Security is another selling point, since it is less likely that you will lose a chargeback dispute if your customer entered their pin number, but this mostly benefits the banks – not the merchant. The truth is that pin-debit is almost NEVER cheaper than signature debit.

          The credit card processing industry revolves around percentages, and it is very important for business owners to understand Basis Points. In a nutshell, 1 Basis Point = 0.0001%, so if you are doing the math on a calculator, you would enter .05% as 0.0005 (5 basis points) or .75% as .0075 (75 basis points).

          When a debit card is run as Credit (Signature debit), assuming the debit card was issued by a large bank (which a most are) such as Wells Fargo, BoA, Chase, Citi, Capital One, TD, etc., the interchange rate is .05% + $0.22 per transaction.

          When a debit card is run as Debit (Pin number required) it is processed through one of the pin-debit networks. There are 9 pin-debit networks (ACCEL, AFFN, INTERLINK, MAESTRO, JEANIE, NYCE, PULSE, SHAZAM, STAR) and thier network fees range from .75% – .90% + $0.155 – $0.2575 per transaction. Also, most pin-debit networks charge an annual fee of $8 – $12.

          So Let’s say you process a $20 transaction as Credit (Signature), your interchange fees would be $0.23 ($20 x .05% + $0.22) . If you were to run that same card as Debit (Pin), you would pay $0.31 – $0.44 ($20 x .75% – .90% + $0.155 – $0.2575), depending on which network that particular card uses.

          Keep in mind that these fees are “Industry standards” and not controlled by your processing company, so it doesn’t matter whether you’re dealing with a larger, well-known company, a smaller local company or a bank. Understand that most sales reps only get paid after they sign you up, so the best advice I can give is to do your homework and don’t just take the sales reps’ word for it. This is all public information and can be confirmed with a quick Google search. That way you’ll know if you’re dealing with an honest company or not.

          I hope this was helpful. Best of luck!

            This comment refers to an earlier version of this post and may be outdated.

            Steve H

            Are their two fee structures to consider where debit cards are concerned? The fee for merchant services and the fee for the interchange? Up until this time I have only operated using cash and/or checks; I’m moving toward credit and debit card transactions using an integrated point of sale system. The salesperson mentioned only a 2% fee for credit cards and a 1% fee for debit cards. Thanks for an inkling 🙂 I’m better to get one (an inkling) before I get stung!

              This comment refers to an earlier version of this post and may be outdated.

              Joe D

              Hi Melissa – Thanks for the informative article. How do the debit card fees work for ecommerce transactions? (Since there is neither a PIN nor a signature.)

                This comment refers to an earlier version of this post and may be outdated.

                Melissa Johnson

                Hi, Joe!

                For eCommerce, those transactions are processed as Card Not Present, which have different rates associated with them. CNP costs a little bit more in general because of the higher over all risk (you just don’t know if the person with the card is the rightful owner sometimes). There’s a lot of security tools meant to help reduce the chance of fraud, though, including AVS.

                Hope that helps!

                  This comment refers to an earlier version of this post and may be outdated.

                  Rajiv

                  Thanks for the great piece! Could you explain how the Debit Gift Card (Vanilla Gift Card) works when it comes to pin transactions? How much would the fees be for a $490 pin based transaction?

                    This comment refers to an earlier version of this post and may be outdated.

                    Tom DeSimone

                    Hi Rajiv,

                    That would be classified as a prepaid debit. See Visa’s published interchange rates for the exact wholesale pricing. The rates you pay will vary based on the markup charged by your merchant services provider.

                      This comment refers to an earlier version of this post and may be outdated.

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