The Complete Guide To Debit Card Transaction Fees: Can You Save Money With PIN Debit?

When we talk about card-based transactions, we often collapse the distinction between debit and credit cards. I, too, am guilty of writing “credit/debit card” on multiple occasions. But even though they can be processed through the same infrastructure, debit cards are not credit cards. In point of fact, according to the 2019 Federal Reserve Payments Study, debit cards are used almost twice as frequently as credit cards.

With so many debit card transactions passing through your point of sale or eCommerce site, it may be a good idea to know the costs associated with debit card transactions as well as the subtle ways they differ from other non-cash payments.

What Are Debit Card Processing Fees?

The most recent available data is from 2018. In that year, the average interchange fee as a percentage of the average transaction value was 0.57%, with an average fee of $0.23. For exempt transactions, the numbers were 1.16% and $0.44, respectively. These averages include both signature and PIN transaction costs.

Exempt transactions are those from issuing banks/credit unions with assets less than $10 billion that aren’t subject to the rate cap outlined in the Durbin amendment (more on that below).

Signature Debit VS Pin Debit Network Fees

When a customer uses a debit card to make a purchase, the transaction can be processed as either a PIN debit or a signature debit, depending on which method is used to verify a customer’s identity.

PIN debit transactions are routed through one of the various PIN debit networks (e.g., Interlink, Maestro, etc.), so they’re considered to be online transactions. You will be charged the applicable debit network fees for these types of transactions, not the interchange fees that credit card associations such as Mastercard and Visa charge. Debit network fees typically feature lower percentage fees than their interchange counterparts but higher fixed per-transaction fees. Because of this, they generally are less expensive to process for large ticket sizes. If you process a lot of small-ticket transactions, you should probably avoid PIN debit, as they will be more expensive.

Signature debit transactions, on the other hand, bypass the PIN debit networks and are instead routed through the applicable credit card networks for Visa, Mastercard, Discover, or American Express. For this reason, they are called offline transactions. The standard credit card interchange fees will apply, in addition to any markup charged by your processor. Interchange fees usually impose a higher percentage fee, but the per-transaction fees are lower. Unlike PIN debit transactions, signature debit transactions will be less expensive to process for smaller ticket sizes.

While we’d like to give you a general rule of thumb regarding the point at which one of these methods becomes more affordable than the other, there simply isn’t one. As you’ll see below, PIN debit network fees and interchange fees are both highly variable. The number of factors that affect them makes it nearly impossible to say with any certainty how much your average ticket size needs to be to make one method less expensive than the other.

However, if you’re concerned about security (and you should be), PIN debit transactions are inherently safer than signature debits. Fraudsters attempting to use a stolen debit card are very unlikely to have access to the cardholder’s PIN, but they can forge a signature fairly easily. Some personal finance advisors now recommend that consumers avoid signing the back of their debit and credit cards entirely, as this makes it that much easier for someone to copy your signature. The increased use of touchscreen devices to capture signatures adds to the problem. You’ve probably already noticed that it’s very difficult to replicate your own “normal” signature using one of these devices. With the increasing security risks surrounding the use of customers’ signatures to authenticate transactions, both Mastercard and Visa have recently dropped the signature requirement for most transactions.

Are Debit Card Transaction Fees Regulated?

Some debit card transaction fees are regulated by the Durbin amendment, which was added to the 2010 Dodd-Frank legislation. This legislation caps the interchange rate paid to non-exempt card issuers at 0.05% + $0.22. A non-exempt issuer is, with some exceptions, a card issuer with assets worth at least $10 billion. The cap applies to both in-person and eCommerce transactions.

In other words, while your local credit union or hometown bank is still free to charge whatever they want in the way of debit fees, large, national banks (such as Bank of America and Wells Fargo) are significantly limited in how much they can charge for the same transaction.

Debit Interchange Rates VS Markup

By now, you understand that your debit card transactions will get routed through either a PIN debit network or a credit card network, either one of which will charge you a set of fees for the use of the card. However, these fees don’t represent your entire cost. Your processor takes a cut, too, although in most cases, it’s a small portion of your overall cost. How your processor determines their cut, also called the markup, will depend on the pricing model you’re using.

As for the “interchange” part of the fee, the most important factors in determining your debit card fees are:

1. Card Networks: As we’ve mentioned above, over a dozen debit card networks operate in the United States, and they each have a different fee schedule. Interlink and Maestro are two of the more familiar networks, but there are others as well. In Canada, Interac is the most well-known debit card network.
2. Issuing Bank Size: With the passage of the Durbin amendment (see below) in 2011, banks and other financial organizations above a certain size are subject to caps on the fees they can assess for debit transactions.
3. Signature VS PIN Debit Transactions: As we’ve mentioned above, these two methods of verifying a customer’s identity as the legitimate cardholder will result in significantly different fees being assessed for the same transaction. Average ticket size is the most influential factor in determining which option is more affordable than the other.

As for signature debit processing costs, you’ll want to look at the various credit card processing models to understand how those fees work. We generally recommend interchange-plus or subscription pricing.

How Much Are Debit Card Transaction Fees For Merchants?

The exact debit card processing fees merchants end up paying per transaction depend on a whole host of factors, both the ones we covered above and some additional ones we’ll dive into in a little more detail here. To illustrate how complicated this can get, let’s take a $20 debit card transaction and apply a number of conditions to see what it could cost under those circumstances.

Debit Network Fees

These are the fees charged by the payment networks that process PIN-authenticated debit transactions. Debit card transaction fees for merchants comprise of:

• A Rate: This is a percentage of the transaction.
• A Transaction Fee: A flat transaction fee.
• A Flat Switch Fee: A flat fee charged for routing information through the network. These are the same for both regulated and exempt transactions and range from around $0.03 to $0.10 per transaction.
• An Annual Fee: A flat fee that’s not charged by all networks. When charged, these are the same for both regulated and exempt transactions. It only applies if you accept transactions through that network.
• Non-Interchange Fees: These additional fees typically apply to cross-border card usage and non-US issued cards used on the network.

Regulated Debit Network Fees

If the Durbin amendment covers it, a debit transaction fee ends up being very predictable.

• The rate will be 0.05%
• The transaction fee will be $0.21 or $0.22 if a fraud adjustment applies

Exempt Debit Network Fees

Outside of the Durbin umbrella, things get really complicated. Not only is there no cap on the rate and transaction fee, but those numbers will vary between networks and even within any given network. That’s right, different types of transactions may have different rates and transaction fees. So if you’re running a debit PIN purchase through Interlink at your gas station, you’ll be charged $0.8% + $0.15, capped at $0.95. If you’re running it through your supermarket, it’ll cost you a flat $0.30.

There are no universal rules that apply here, but generally speaking, prepaid debit cards will incur higher rates, and transactions under $15 will have higher rates.

Here are some average costs for each network to give you an idea of the costs of processing exempt pin debit.

Signature Debit

There’s a good chance your debit card has Visa or Mastercard’s logo on it. When you run a debit card through your system as a credit card, the transaction will be processed as though it were a credit (this also means that the customer’s funds are not verified during the transaction). Instead of paying debit network fees, you’ll pay the fees associated with running that credit card brand.

Like debit PIN networks, credit card networks charge interchange fees. Things get more complicated when you factor payment processors into the mix, as they each have their own way of charging you for their services. These fees range from (our favorite) interchange-plus, which is simply the interchange rate plus the fees charged by your processor, to flat rates for all transactions, to tiered pricing.

You can read more about credit card interchange rates in our feature, What Are Interchange Fees For Credit Card Processing?

As we mentioned above, in comparison to PIN debit, signature debit tends to have higher rates but lower flat transaction fees. Additionally, signature debit fees tend to be slightly lower for transactions covered by the Durbin amendment and significantly higher for exempt transactions.

How Do I Make Sure I’m Getting The Lowest Debit Card Processing Fees?

With all the moving parts involved in debit card transactions, it can be difficult to form a strategy for minimizing debit card processing fees. That said, there are some things you can do to keep your fees lower. Just be advised that many of these strategies have downsides as well.

• Set Your POS Up To Automatically Prompt Consumers For Their PIN Number: Generally speaking, it’s in your interest to have customers pay through a PIN transaction than a signature. The savings from signature debit for small transactions are minimal compared to how much you save running larger ones as PIN transactions. This won’t stop a determined customer from running it as signature debit, but most won’t care and will probably take the path of least resistance. However, if most of your transactions are less than $15, this may not be a smart strategy.
• Choose A Network With Favorable Rates For Your Type Of Business: Most new EMV terminals are automatically configured to allow you to select the network you want to use. Since rates can vary between networks and types of transactions, you’ll want to choose a network that processes your types of transactions at a lower rate. Remember also to minimize switch fees and annual fees when possible. Keep in mind that these fees can change at pretty much any time, so you’ll probably have to keep an eye on them.
• Pick A Good Payment Processor For Your Signature Debit Transactions: If you’ve struck a good deal with a great credit card processor, you’ll also have struck one for your signature debit card transactions. Check out The Best Small Business Credit Card Payment Processing Companies for some ideas.

Are Debit Card Merchant Fees Worth The Cost?

There’s no one-size-fits-all answer to the question of whether debit card merchant fees are worth the cost, but for the majority of retailers, the answer will probably be yes. Due to a combination of regulation and fraud protection, debit card transactions are frequently cheaper for merchants to process than credit cards. And even when they’re more expensive, it’s not a significant amount. So if you’re offering credit card transactions, you may as well offer debit PIN transactions too. If, on the other hand, you’re a cash-only merchant who is happy with the amount of business you’re getting, the possibility that the convenience could attract more customers may be outweighed by the reduction in your profits.

Need an up-to-date terminal to process your debit card transactions? Check out The Smart Merchant’s Guide To Credit Card Machines & Terminals: What Do Small Businesses Really Need?