Visa Debit or US Debit?
Debit or Credit? Do your new chip & pin payment processing terminals now ask customers to choose between ‘Visa Debit’ and ‘US Debit’? The ever changing card processing landscape can make this question even more confusing.
Customers have historically been asked to choose between “Debit or Credit” and now, for some, the option for preferred processing through 'Visa Debit' or 'US Debit' is prompted at the consumer level on the terminals. This change can be attributed to the customer 'dipping' their chipped card into the terminal and remaining in control of the transaction opposed to the cashier.
The ‘US Debit’ option means that the Personal Identification Number (PIN) is entered by the customer as the form of security confirmation compared to a signature on the terminal or receipt (with the option for cash back if the merchant has enabled this option), using money deposited with the card provider (bank). The transaction is routed from the retailer to the issuing card’s bank, live in real time: incurring debit network fees to route the transaction. Costs associated with PIN processing vary depending on the sale’s monetary value and merchant category code and the debit network’s fees (set percentages from the network, transaction and switch fees and the annual premium) along with the processors fees for profit often referred to as the PIN debit fee. It is worth noting that although chip cards are more secure than the old mag stripe cards, the retail industry continues to urge processors to make 'chip AND pin' the industry standard as this would be more secure than a signature that can be forged.
Prior to 2011 major credit card networks could dictate, without any limitations, the fees they charged to process debit cards. The fees were used to help fund network processing, fraud protection efforts, and were and are incredibly profitable for the issuing banks and card processors. The retail industry led the fight to help reign in unchecked processing fees that saddled retailers. Ultimately, the Durbin Amendment was included in the large Dodd-Frank Financial Reform Act. The Durbin Amendment helped reduce debit card swipe fees by 40%; debit card fees were lowered from an average of $.45 per transaction to $.21 per transaction (the avg. transaction of $38 incurs a swipe fee of $.24 cents.) *NOTE: In the spring of 2016, new legislation was proposed at the national level to repeal the Durbin Amendment which would allow debit fees to increase without restraint. The retail industry is adamantly opposed to repealing Durbin.
The ‘Visa Debit’ option, as stated in its name, utilizes credit card network processing. The Visa (or Mastercard) Debit option does not require a PIN and therefore the transaction is authorized with a signature and is borrowing money from the card issuer. It is routed through Visa or Mastercard’s network, incurring the credit card companies’ fees and the interchange fee to the customer’s card issued bank. Interchange charges fluctuate depending on the monetary total of the purchase, the size of the card’s bank and whether or not the card was physically used in addition to the processor’s rates and assessments.
Understanding the fees associated with debit and credit card processing is critical as various fees can cut into your bottom line. We recommended that you review your processor’s fees in comparison to your sales to determine the most cost effective option, ask what there may be for room to negotiate on flat fees and choose the processing structure that works best for your business.
Update from National Retail Federation (11/22/16)