Debit Card Processing Rates Explained

A Federal Reserve report from 2020 shows that an average debit card fee is 0.65% of the transaction value. With that, it is typical that debit card processing rates are slightly lower than credit cards as they cost merchants a lower interchange fee. But debit card processing fees are not always the same in every case. Knowing and understanding the factors that determine your debit card payment is essential. It can help you develop a better strategy to save money while choosing a debit card and ensure you are not paying more than you need to.

Whether you are a business owner, a merchant, or a consumer using a debit card, the article below will give you essential insight into the factors affecting your transaction fee and help you lower it. 

Type of Debit Card Transaction

There are three types of debit card transactions; signature, PIN, and card-not-present debit. As a merchant, you cannot command how a customer deals with a card-not-present- transactions. However, you should focus on these two types of debit card transactions.

PIN Debit Transaction

This type of transaction happens when customers enter their pin to authorize the transaction after swiping their debit card into the terminal. In this transaction, the card is processed as debit. PIN Debit payments are routed through PIN debit networks. These networks charge a lower percentage of debit network fees than the interchange fee, but their per-transaction fee is higher than credit card organizations. 

PIN Debit Transaction is not applicable for transactions through eCommerce. It can only be done when the customer enters their pin in person.

PIN debit transactions are considered relatively safer than Signature Debit transactions because if your debit card is stolen, the scammer cannot guess your pin as easily as they can forge your signature. 

Signature Debit Transaction

Signature Debit Transaction uses credit card networks such as Visa and Master card. It is processed when customers use their signature to confirm the transaction after swiping their debit card. In this type of transaction, the debit card is run as credit. The credit card network will charge a higher percentage of interchange fees, but the per-transaction fee in signature debit transactions is lower than credit card processing.  

Signature-based transactions are considered riskier than PIN-based because a scammer can replicate the owner’s signature.

Debit Card Fee Regulation

The Durbin Amendment included in the legislation by Dick Durbin restricts banks to only charge 0.05%+$0.21 per transaction. This limitation applies to all debit card transactions. 

Provider Markup

Along with the interchange fee, a merchant has to pay a provider markup to their merchant service provider. This fee depends upon the pricing plan. If you are on a tiered pricing plan, this fee will differ. But the provider markup will be fixed if you are on an interchange-plus pricing plan. 

The Durbin Amendment rate only controls the regulation of interchange fees and not the provider markup. It can benefit a merchant only if their pricing plan is in an interchange-plus structure. 

Debit Interchange Rates

Here are the aspects determining the interchange fee of a debit card transaction;

Card Networks / Associations

The data for a debit card transaction is processed through a card network that charges a certain amount. This fee differs in every card network (also called card associations). 

Issuing Bank Size

According to the Durbin Amendment law, the banks that make more than a certain amount of profit and have more than $10 billion in assets can only charge a fixed fee. So, the size of issuing bank is also a deciding factor for the interchange rate of your debit card.

Type of Debit Transaction

Since PIN debit transactions are safer than signature debit transactions, their processing fee is relatively lower than the other.

Card-Present and Card-Not-Present Transaction

When a customer is present with their debit card at POS, this transaction is likely to  be more authentic than online payments. That’s why card-present payments have a lower processing rate; thus, the interchange fee will also be less.

PIN Debit Transaction Fee

Below is the list of fees charged by payment networks that deal with PIN debit transactions

• An Interchange Rate that is a fixed percentage of fee per transaction.
• A Transaction Fee to carry out the transaction.
• A Flat Switch Fee to process payment data through the network.
• All networks do not charge an Annual Fee. It is applicable only if you confirm accepting transactions through a network that demands it.
• A non-Interchange fee is charged for cards issued outside the US or charged by the network when a debit card is used across borders.
• Regulated Debit Network Fee is only charged by banks of a specific size that fall under the category of Durbin Amendment law.
• Exempt Debit Network Fee is the fee from networks exempted from Durbin Amendment. This type of fee has no fixed rate and can differ from one network to the other.

Signature Debit Transaction Fee

Signature transactions need the customer’s signature to verify the transaction. The processing network for such transactions is the credit card network instead of the PIN debit network. So, the interchange fee for that is the same as any credit card transaction. As a result, the signature-based transaction fee is higher than PIN debit transactions. 

Saving Money on Debit Payments 

No payment plan will give merchants a fixed solution that applies to everything, but the cost can be minimized by following these practices:

• By ensuring that the merchant service provider offers an interchange-plus pricing payment method. In an interchange-plus pricing plan, a merchant must pay a fixed markup with an interchange fee.
• A subscription fee is charged in membership pricing, and the markup percentage is excluded. 
• Keep a PIN pad at your terminal to ensure that debit card transactions are not processed as credit.
• Select your debit network wisely, as it will determine the fixed interchange rate.
• Know when to process the transaction as signature or PIN debit 

Taking your time out to develop an effective payment plan can help you save additional funds that you would be paying for payment processing.