When a consumer runs their debit card in one of your terminals, are they being asked to sign their name or enter a PIN? The answer could have a significant impact on your margins. Transaction size and the pricing structure of your processor play the leading roles here.
Card processing costs are lower for Signature debit transactions if your business has $15 or under average transactions. Conversely, processing costs for a PIN debit transaction are lower if your average ticket is $15 or more.
Fee Structures and Mark-ups
The difference is the fee structure. Signature debit transactions have higher percentage-based fees and lower transaction-based fees. PIN debit transactions have lower percentage-based fees and higher transaction-based fees.
Your processor’s mark-up also affects the difference in cost. For signature debit transactions, your processor adds both a percentage and a transaction-based fee.
To determine the actual cost you pay for each debit transaction, you will need to know the type of pricing you have with your processor – tiered or interchange plus.
Interchange-Plus
For example, let’s look at a signature debit transaction at interchange-plus pricing. In this example, we’ll assume the processor charges .015% plus a $0.10 per transaction. To calculate the total fee, add the processor fees to the VISA debit interchange fee. As of April 2019, VISA fees were 0.80% plus a $0.15 transaction fee. The total processing fee would be 0.95% plus a $0.25 transaction fee. For a $15 sale, total fees equal $0.385. On a $100 sale, total fees are: $1.20
In a PIN debit sale with interchange-plus pricing, let’s assume our processor adds a transaction-based mark-up of $0.12. If the debit network’s fees are 0.80% plus a $0.185 transaction fee, the total fees for this PIN debit transaction are 0.80% plus a $0.305 transaction fee.
For a $15 sale, total fees would be $0.425. For a $100 sale, the total fees would be $1.11
Tiered Pricing
Let’s assume average PIN debit network fees of 0.834% plus $0.197 per transaction, and the processor’s PIN debit fee is $0.18. Total fees would be 0.834% plus a $0.377 per transaction fee. For a $15 sale, total fees equal: $0.502 On the $10 sale, total fees are: $1.21
Conclusion
The key to understanding which type of debit card is cheaper to process for your business depends on the size of your business, whether you have interchange-plus or tiered pricing, and your processor’s mark-up.
Generally, signature debit cards are more economical to process if your average sale is under $15, and you have interchange-plus pricing with your processor. PIN debit is better for larger tickets and when you have interchange-plus pricing from your processor.
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