Debit Card Processing Fees Simplified
Learn About Signature Debit Fees, PIN Debit Fees & More
You’ll pay debit card processing fees on every debit card payment your business receives. But the form those fees take—and the amounts you’ll pay—depend on the network that processes the payment, the size of the bank that issued your customer’s debit card, and the pricing model you agreed to when you signed up with a payment processor.
Below, we’ll explore the details you’ll need to know, including the types of debit card processing fees, when they arise, and how to maximize the potential savings that accepting debit card payments can provide.
Debit Card Processing Fees:
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What are Debit Card Processing Fees?
The term “debit card processing fees” can refer to several types of fees associated with accepting debit card payments. These include wholesale costs charged by issuing banks, credit card networks, or PIN debit networks, and any markups and other service fees your payment processor adds into the mix.
Three main factors shape the processing fees generated by any given debit card transaction:
- the channel used for routing the transaction to the bank (either a credit card network or a PIN debit network);
- the size of the bank that issued your customer’s debit card; and
- your payment processor’s pricing model (flat rate, tiered, or interchange plus).
Related: How Debit Card Processing Works
Signature vs. PIN Debit Fees
Debit card transaction information has to be routed to a customer’s bank for authorization, and this can happen through two channels: 1) through a credit card network (Visa or Mastercard), or 2) through a PIN debit network (companies like Star and Accel).
When a debit transaction is routed through a credit card network, it is called signature debit. At a POS terminal, this typically corresponds to the “credit” option most of us are probably familiar with, and the customer often verifies their identity by signing a receipt.
The signature requirement, however, can often be waived by merchants for smaller tickets, and card-not-present transactions can also be “signature debit” despite that no signature is actually involved.
Processing Fees for Signature Debit
Because a signature debit transaction is routed through a credit card network (Visa or MasterCard), the transaction is subject to the network’s interchange fees and card network assessment fees (also called card brand fees).
For example, Visa’s interchange rate for card-present debit transactions in a retail setting (CPS Retail) is currently 0.80% + $0.15. The percentage rate applies to the sales volume and the dollar amount is a per-transaction fee, so a $50 debit transaction qualifying for this rate would result in a $0.55 interchange fee:
- 0.80%($50) + 1($.15) = $0.55.
Note that this isn’t the only fee applicable to a signature debit transaction. As previously mentioned, card brand fees will figure into the wholesale costs for debit card transactions, and your payment processor will ultimately determine how those wholesale costs figure into your overall processing costs.
Related: Credit Card Processing Fees
PIN debit refers to debit card transactions routed through a PIN debit network and corresponds to the “debit” option at many POS terminals. Here, no signature is required. The customer’s personal identification number (PIN) serves to verify their identity.
PIN debit transactions are subject to PIN debit network’s fees. These fees include the PIN debit network’s interchange fees and so-called “switch fees” typically charged on PIN debit transactions.
Is PIN Debit Less Costly For Merchants?
PIN debit transactions have a reputation for being cheaper for merchants than signature debit transactions, but that’s not always true.
Typically, debit networks charge higher per-transaction fees and lower percentage rates than credit card networks, which means merchants with higher average tickets will often save money if their customers enter a PIN at the point of sale. For smaller transactions, however, signature debit is often the cheapest option for merchants.
And, as with signature debit transactions, your payment processor is the ultimate arbiter in determining how much your business pays for PIN debit transactions. We’ll discuss the influence of processor fees and pricing models in detail below.
Debit Card Fees & the Durbin Amendment
Debit card fees are partially regulated by the Federal Reserve through the Dubin Amendment (15 U.S.C. 1693o-2), which caps interchange rates for transactions involving debit card issued by banks with $10 billion or more in assets. Banks of this size are called “regulated” banks because the Durbin amendment applies to them. Smaller banks that don’t meet the Durbin asset threshold are called “unregulated” or “exempt” banks.
Currently, the Durbin Amendment caps debit card interchange rates for regulated banks at 0.05% + $0.21 (or $0.22 if certain fraud prevention criteria are met)—meaning debit card transactions involving cards issued by regulated banks will generate lower interchange fees than transactions involving debit cards issued by unregulated or exempt banks. This applies to both signature debit and PIN debit transactions.
Debit Card Fees & Pricing Structures
The debit card processing fees set by the credit card networks and PIN debit networks are part of the wholesale costs associated with debit card transactions, so it’s common to talk about those fees as though “you”—the merchant or business—pays them.
In reality, payment processors pay the wholesale costs for all transactions, credit or debit, and then recoup their costs by charging their merchants according to various credit card pricing structures.
If you’re on a flat rate pricing plan, the processor will apply a few set rates to every card payment you receive (usually one for card-present transactions and another, higher rate for card-not-present transactions).
Typically, the processor doesn’t distinguish between credit and debit card transactions, or between signature debit and PIN debit. You’ll pay the same rates regardless of these factors, which means any potential savings for transactions with lower interchange fees will likely get pocketed by your processor, not you.
If you’re on a tiered pricing plan, the processor will define various tiers or “buckets” with lower or higher rates and charge you based on which tier a given transaction falls into. The tiers are usually defined by a transaction’s level of risk and other factors influencing interchange rates, and consist of so-called qualified, mid-qualified, and non-qualified categories.
Some processors have distinct tiers with lower rates for debit card transactions, which means the opportunity to save on debit vs. credit card transactions is often there—though tiered pricing remains one of the most expensive pricing structures when it comes to a merchant’s overall processing costs.
If you’re on an interchange plus pricing plan, you’ll be in a position to reap the full benefit of the lower interchange rates that apply to debit card transactions—whether it’s signature debit, PIN debit, or transactions with rates capped by the Durbin Amendment.
Why? Because interchange plus pricing is a form of “pass-through” pricing. The processor passes its wholesale costs directly to the merchant, instead of bundling transactions into various rate categories, and then adds its markups on top of that.
So, if the wholesale costs for a transaction are lower, you’ll pay less. That’s why we almost always recommend interchange plus pricing to our clients. It’s the surest way to maximize any potential savings when your business accepts credit and debit card payments.