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Our Guide to Debit Card Processing Fees
March 31, 2021
Our Guide to Debit Card Processing Fees

Our Guide to Debit Card Processing Fees

In a 2019 study, the Federal Reserve analyzed consumer payment behavior. They found that consumers made 31 percent of their payments with debit cards.

The other two most popular methods were credit card and cash, at 24 and 26 percent, respectively. Put simply, debit cards are the most popular method of payment in the United States.

Of course, providing various payment methods comes at a cost. With debit cards, that cost can be hard to predict as a small business owner. Debit processing fees depend on your processor and merchant account provider, transaction and card type, and your merchant category code.

All that means the most affordable way to offer debit card payments varies from business to business. So in this guide, we’ll explain what debit card processing fees are, how they work, and how to minimize them.

How Debit Card Processing Fees Work

On each debit card purchase, you’ll pay three types of additional fees: interchange, assessments, and the processor’s markup. Interchange fees go to the banks that issued your customer’s debit card. Assessments go to the card brand, like Visa or Mastercard. However, markups always go to the debit card processor.

You can think of interchange fees as your baseline cost. This cost depends on:

  1. The size of the bank that issues your customer’s card
  2. Your merchant category
  3. Transaction type (PIN or signature)

Of course, you can’t control your merchant category or which bank your customer uses. However, you can set policies to encourage customers to conduct certain transaction types. So, in the next section, we’ll explain two types of debit transactions and how they affect your processing fees.

Type of Debit Transactions

PIN Debit Transactions: When you swipe your debit card and enter your Personal Identification Number (PIN), that’s a PIN Debit transaction. ATM and banking networks, such as ACCEL, STAR, and NYCE, process PIN debit payments.

Signature Debit Transactions: When you swipe your debit card and sign a physical receipt—or provide a digital signature—that’s a Signature debit transaction. Credit card networks, like Mastercard or Visa, process these transactions.

Generally, PIN debit transactions feature lower percentage fees and higher fixed transaction fees. Signature debit transactions are the opposite—they carry higher percentage fees and lower fixed transaction fees.

As a result, signature debit transactions are less expensive for small purchases and PIN debit transactions are less expensive for larger purchases. Unfortunately, though, there’s no single inflection point at which signature transactions become more affordable than PIN transactions.

This is because there are many other factors affecting the amount of your processing fee. These factors include:

  1. Your merchant category
  2. Your customers’ card issuer
  3. Frequency of refunds, chargebacks, card refusals, and improperly authorized transactions
  4. Whether you serve international customers

How to Reduce Debit Card Processing Fees

As you might expect, how you reduce debit card processing fees is situation-specific. Still, there are a few tips and factors to consider that are applicable to every business. So in the next section, we’ll list three things your business can do to minimize the cost of processing fees.

1. Work with a processor who offers interchange-plus pricing

Assessment fees are set by the card issuers and therefore can’t be changed. However, with bundle pricing, the processor can set a flat fee that is marked up from the assessment fees set by the card issuer. The way to avoid this markup is to insist on interchange-plus pricing.

The interchange-plus pricing model ensures you pay the assessment fee plus a flat markup. Otherwise, payment processors may offer a bundled rate that saves you money on some transactions but ends up costing you more overall.

2. Encourage the right kind of card handling policies

When you think of debit card transactions, you think of purchases. Yet purchases are just one of many transactions that your processor charges you for. Chargebacks, refunds, rejected cards, international purchases, and others are all “transactions.”

With all these transactions come different costs. So to minimize how many transactions you pay for, you need the right card handling policies. For example, if a given card issuer is especially expensive, you might refuse to accept a certain type of card. Similarly, you might encourage customers to do PIN debit transactions and avoid keyed-in transactions.

3. Know your merchant category

While you can’t change your merchant category, you’ll need to know it to compare pricing and set card handling policies. For example, if American Express charges your merchant category higher interchange fees, you might decide against accepting American Express.

To find interchange fees for your merchant category, you can find them online for Visa, Mastercard, and American Express.

Conclusion: Don’t Be Complacent

Whether you hire someone with payment expertise or do it yourself, finding the right payment processor takes time. You’ll need to educate yourself and understand some of the mechanics of payments to make sure you get the best deal. Yet even after you find the right processor, it’s important not to get complacent.

Reducing debit card processing fees is as much about your processor as it is about how you conduct business. Your employees and your card terminal’s interface should encourage the kind of card use that’s most cost-efficient for your business.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].