Jon Perry
A question often asked is, “When I use my debit card, should I use my PIN or have it swiped like a credit card?” The question is asked because consumers want safety, security and cost effective measures.
For safety and security, it has been the use of the (Personal Identification Number) PIN pad. Visa Interchange and MasterCard Interchange offer some of the lowest rates to process when a consumer uses a PIN pad. Why? Because only that consumer is supposed to know that PIN number. A thief can use use your debit card if it is swiped, but not if it’s PIN debit.
The PIN debit is a very cost-effective way for the merchant to pay their credit card processing fees. Since the transaction travels over the ATM network, considerably lower fees can be available.
Let’s put that on hold for a moment while I share with you an experience I had yesterday. I received my new business debit card from the bank. It has in bold “Important Message: Credit or Debit, which should you choose?“ It continues with:
When paying with your Debit Card, you’ll be asked to choose “debit” or “credit”.
We suggest you always select “credit”. We know it’s confusing as your Debit Card is not a credit card, but the money for your purchase will still come out of your checking account even though you didn’t select “debit”. And since you selected “credit”, you won’t have to enter your Personal Identification Number (PIN) in public for added security.
Whoa! The bank is asking for you to run a debit card as a credit card? Why?
It’s simple. The current profit the issuing bank (the bank that gave you the debit card) realizes is 1.03%, when the card is swiped. This is paid by the merchant. On top of the 1.03%, there are Visa and MasterCard Dues & Assessments, plus the small mark-up from the merchant services company. If the consumer runs the card as a PIN debit, the transaction runs on the ATM network. This means the bank doesn’t get its 1.03%.
My bank message also said I’ll save time by not entering my PIN number if I run it as a credit card. What they don’t tell you is you will have to sign the receipt for a credit transaction, but you won’t have to sign for a PIN transaction. PIN transactions are faster than having to sign a receipt.
So Swipe or PIN entry? Let’s recap. PIN debit makes cost-effective sense for the merchant, as well as safety, speed and security for the consumer. Okay, so maybe the bank didn’t get its 1.03%. We’ll leave that for the federal bailout.
For more information, you can reach Jon Perry at 877.577.3779 or through the contact form below.
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Jon,
Unfortunately, the answer is not quite that simple. The fact is, for most small business owners with less than a $30 average transaction the 1.03% is less expensive than the fees paid to the Debit Networks. Many small business owners have no idea they are paying as much as $0.90 per debit transaction. If your average ticket is $10.00 that amounts to 9% where as the 1.03% would have been about $0.25 total.
The other thing most small business owners don’t know is that those pinpads are not upgradeable. If they are more than a few years old is about 100% likely that the transactions are no longer secure under the current PCI recommendations.
As far as safety, if it is your card, and you are swiping it, there’s not much risk that it’s someone else. There is in fact more risk that some scammer is looking over your shoulder to steal your pin.
In my opinion, unless you are making a purchase over $60 everyine wins when the transaction is run as Credit.
Michael,
Thank you for your comments. When we onboard a merchant, we provide them with a break-even point between PIN debit and swiped debit. Since our PIN debit fees are based on average transaction, our pricing is far below the $0.90 you stated above. We do not have a one size fits all. Our break-even is closer to an average transaction of $25.
As for PIN pads, the triple DES requirement has been out for a few years. However, some merchant services companies sold what they had in stock, rather than the newer versions. All of the new PIN pads and terminals are tamper resistant. If the shell is opened, the PIN pad and terminal fail to operate.
To recap, the debit vs swiped fees are dependent on the merchant services company providing the service. Yes, there could be major gaps in pricing, but if there are, the merchant should evaluate other merchant services companies before signing an agreement.
For the past three years or so, PCI compliant Triple DES PIN pads have been on the market. One of the primary reasons they have moved to the new technology is because of skimming. The new PIN pads, like new terminals, are tamper resistant and eliminate skimming from the equation.
Lastly, PIN-based debits are not subject to chargebacks and PIN debit transactions cannot be downgraded.