Debit Card Merchant Accounts

We used to live in a credit card society.

OK, OK. We STILL live in a credit card society. ;-)
But increasingly, we are becoming a debit card society.

It's easy to see why. Debit cards have all the convenience of credit cards plus more.

• Most double as ATM cards, eliminating yet another card to carry.
• And they won't add to consumers credit card debt. Many are sinking in debt, so budget-conscious consumers prefer to use their bank account directly when they can.

And chew on this: In a recent quarter, VISA announced that more debit card transactions than credit card transactions had been conducted.

So debit card merchant accounts are important. But don't worry, this isn't yet another merchant account to buy. We'll use the term debit card merchant accounts, but any merchant account provider will be able to set you up to accept debit cards for no additional cost.

In fact, most merchant accounts these days are automatically setup to accept debit cards. But do make sure. Debit card merchant accounts are important.

SIDEBAR: True debit cards require that a PIN number be entered to make a purchase. These days, though, when most people speak of a debit card they really mean a check card. These Visa and MasterCard check cards act just like traditional debit cards, deducting funds directly from the shoppers bank account, but they have the Visa and MasterCard logos on them and can be used with just a signature, not a PIN number.

Understanding debit card merchant accounts

In Card-Not-Present situations (Like online and MOTO), debit card transactions are simply handled like credit cards. The fees are the same, the verification options are the same.

But in retail situations, where a card is physically present, the real payoff comes.

If you can allow the customer to enter their PIN code for the debit card (by using a terminal with a PIN pad or connecting an external PIN pad), the fees are lower. Sometimes significantly.

With a debit card purchase using a PIN code, you won't pay a discount rate. If you'll recall, a credit card transaction generally incurs both a flat transaction fee and a discount rate percentage of the sale. So this is a substantial savings if you do a good number of transactions.

SIDEBAR: The key here is the size of your typical transaction.

• A flat transaction fee of, say, 40 cents, on a $250 order is just ... 40 cents.
• That same order as a credit card might be a slightly lower flat fee, say 25 cents, but a discount rate of 1.59%. That would be a cost of $3.98 (250 x .0159) on top of the 25 cent flat transaction fee.

40 cents versus over $4. Pretty clear winner. But it should also be clear that will small average transactions, the real benefit will only come with a high number of transactions.

The reduction in fees makes sense, too. The risk of fraud is much reduced. PIN numbers represent a tangible means of securely verifying identity. Not perfect, of course, but much better than a signature. Despite the amazing (foolish?) amount of faith we put in signatures, they mean almost nothing. Go ahead, ask a security expert.

Of course, both PIN-based and signature-based debit card processing must be included in debit card merchant accounts services you are considering.

If the PIN-based equipment is simply too expensive relative to the actual savings, or the option simply not feasible in your situation, don't worry. Debit cards will simply be processed as credit cards, with your point-of-sale terminal creating a receipt to be signed in the usual fashion.

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