Pin Debit vs Signature Debit

When you swipe your debit card at the checkout, the point-of-sale (POS) terminal will usually ask you: “Debit or Credit?” I have no idea why this has become accepted, as you would have to be an industry insider, in order to understand its meaning. The more appropriate question, and one which would be immediately understood by everyone, would be: “PIN or Signature?” Either way, the question refers to the type of debit card authorization.

Signature Debit

A signature debit transaction is when you process a debit card by having your customer sign the sales receipt instead of entering her PIN number. It’s sometimes referred to as running the card “as credit” but it’s still considered a debit transaction.

Processing a debit card in this manner causes the transaction to be routed through Visa, MasterCard or Discover’s interchange instead of through a PIN debit network. For this reason, signature debit transactions are also referred to as offline debit transactions because the transaction takes place off the debit network

Depending on which card brand’s logo is on the debit card, Visa, MasterCard or Discover’s interchange fees are used to determine the charge for a signature debit transaction.

PIN Debit

A PIN debit transaction occurs when a customer enters her personal identification number (PIN) to make a purchase. Processing debit cards using a PIN causes transaction to be routed through debit networks instead of credit networks.

In the case of a PIN debit transaction, the debit network through which the transaction is routed will determine the charge for the transaction.

Which method is cheaper?

As noted in the introduction to this article, signature debit transactions are less expensive than PIN debit for businesses with smaller average tickets. PIN debit transactions are less expensive for businesses with larger average tickets.

The reason for the difference comes down to the fee structure of signature versus PIN debit transactions. Signature debit transactions have higher percentage-based fees and lower transaction-based fees. PIN debit transactions have lower percentage-based fees and higher transaction-based fees.

The processor’s markup also affects the cost difference. In the case of a signature debit transaction, the processor applies both a percentage-based and transaction-based markup.

Unregulated Network Pricing and Ticket Size

For example, let’s assume that a business used SwipeCard247 to find a competitive credit card processing service with interchange plus pricing, and their rate is 0.15% plus $0.10. In order to calculate the business’s fees to process a Visa branded signature debit transaction, all we need to do is add the processor’s markup to Visa’s debit interchange fees, which are currently 0.80% plus a $0.15 transaction fee. This gives us a total charge of 0.95% plus a $0.25 transaction fee.
In the case of PIN debit, a processor only applies a single transaction-based markup to the transaction. For example, a typical PIN debit fee is something like $0.12. To determine the final cost, add the processor’s markup to the fees the PIN debit network charges.

For example, Interlink’s current network fees are 0.80% plus a $0.185 transaction fee. If we add Interlinks’s network fee to the processor’s markup, we arrive at a total fee of 0.80% plus a $0.305 transaction fee.

Another Important consideration:

Before making changes to how you accept payments just based on your per transaction size, take a look at how much regulated debit you are accepting now. Review your merchant statement or ask your processor about your regulated debit volume.

While you’re at it check and see what your processors is charging you for regulated, and unregulated debit. Make sure to specifically as about signature and PIN debit rates for both transaction types.

You might find that you accept a lot of regulated signature debit, but your pricing on those cards is the same as unregulated, meaning you are not seeing any of the cost savings of those transactions. You might also find that other transaction fees make one transaction type less cost effective that it should be. If this is the case it’s probably time to re-evaluate your current setup and see what other options are available.

If you have any questions understand a processing statement feel free to reach out to us at 800-898-3436, and we will do breakdown and explanation on any merchant processing statement.