How Debit Card Processing Works for Merchants [Updated for 2021]

Debit cards are the payment method of choice for 67% of consumers.

In a world where so many consumers are gun-shy about spending money they don’t have, the popularity of debit cards should come as no surprise. Most financial institutions even have apps that let consumers deposit checks remotely and track their debit card spending as they go.

But all debit card processing companies aren’t created equally.

Let’s take a look at the ins and outs of debit card processing and the fees that are involved, so you can learn how to maximize revenue on every transaction.

How does debit card processing work?

When a customer swipes their card or inserts a chip, your point of sale system registers their card info and sends it to their issuing bank for verification. Their bank then confirms that they have money in their account for the purchase, performs a security check, and (hopefully) approves the transaction.

There are two types of debit card transactions you’ll encounter in your business: PIN and signature.

PIN debit transactions are the most popular form of debit card processing services. Debit card networks usually have low percentage fees and high interest rates, so PIN transactions are best for larger purchases with smaller banks.

Transactions are categorized as “PIN” when a cardholder chooses “debit” at checkout, and they require customers to enter a 4-digit PIN number for identity verification. PIN transactions are also called online debit card payment processing, since they use online debit banking networks to process each customer’s card info.

Signature debit transactions use credit card networks to process transactions. Since credit card networks generally have high percentage fees and low interest rates, signature transactions are better for smaller purchases with larger banks.

These transactions happen when a customer chooses “credit” after swiping their debit card, and they require customers to sign a receipt instead of typing in their PIN. Signature transactions are also called offline payments.

Technically, there is a third type of debit card processing:

Keyed in transactions. Keyed in transactions are much more expensive to process, but they only happen in cases where your customer can’t swipe their card or your system is offline for some reason. To minimize keyed in transactions, integrate your POS system with your payment processor or use a modern POS/card reader that can read cards other machines can’t.

How is debit card processing different from credit card processing?

Debit and credit card processing are two totally different processes. They’re even totally different when your customers choose the “credit” option when processing their debit card at checkout.

Credit card processing is more expensive, and it has more moving parts. To process a credit card transaction, your POS system sends information to a payment processor––like Payment Depot––before sending the info to your customer’s card-issuing bank. And once a credit card payment is approved, it goes through your customer’s payment processing company one more time before the transaction reaches your system.

Only payments made with credit cards come with surcharge fees, which makes sense because the payment processor does a lot more work to process those transactions.

Debit card processing fees, on the other hand, are lower, so you can afford to accept debit cards for smaller transactions. But with debit cards, consumer spending is limited to the money already in their bank account, which means there will always be customers who shop with credit cards out of necessity.

When your customer makes a debit card transaction, their 16-digit card number and accompanying data are routed to their card-processing network (Visa, MasterCard, etc.) and then to their card-issuing bank to ensure that they have the necessary fund in the customer’s account to make the purchase.

How much are the average debit card processing fees?

Debit card processing costs depend on a few factors: whether the card is regulated or unregulated, the size of the transaction, what type of business you have, and whether it is a signature or a PIN transaction.

Because there are so many variables, it’s hard to pinpoint the exact debit card fees that you’ll pay as a small business. To give you some ballpark figures thought, the card issuer Visa states the following in its latest fee documents:

  • Debit card fees for small ticket transactions – 1.55% + $0.041 (Exempt Visa Check Card Card Present Transactions)
  • Debit card fees for small ticket transactions – 0.05% + $0.21 (Regulated Visa Check Card Card Present Transactions)
  • Debit card fees for retail – 0.80% + $0.15 (Exempt Visa Check Card Card Present Transactions)
  • Debit card fees for retail – 0.05% + $0.21 (Regulated Visa Check Card Card Present Transactions)

Do note that the above debit card processing rates are just your interchange fees, and the fee that you’ll ultimately pay may be subject to markups from your payment processing solutions provider.

More info below.

Debit card processing fees are called “interchange rates.” Your account provider will also charge you a “provider markup” on top of your interchange rate, but how much you pay for that provider markup will vary depending on your merchant service provider’s pricing structure.

There are both tiered and interchange-plus pricing structures. Like with credit card processing, tiered pricing plans charge varying amounts for different transactions, while interchange-plus uses a fixed markup over interchange for each purchase––so you can create a workable budget for card debit processing based on the transactions you typically process each month.

What technology (hardware and software) do merchants need to process debit cards?

To process debit card transactions, you’ll first need a debit card processing machine. The good news is that you can process debit cards with the same POS system, smart terminal, or standard terminal that you use to process credit card transactions.

Keep in mind that credit card processing and debit card processing take place on entirely different networks Debit card processing online requires a strong, accessible WIFI connection.

You’ll want to keep your in-house WIFI network separate than the one that your customers can access for security purposes. You may also want to enable offline debit card processing if your store is located in an area where internet connection is unreliable.

Understand the different payment options

Processing credit and debit card transactions gets really complicated, really fast. But if you take away two key points from this article, let them be these:

  • You will want to be sure that you’re working with a payment processor that offers interchange-plus pricing on debit card transactions, so you can get the lowest rate every time your customers make a purchase.
  • The reality is that payment processing is a complicated industry and, if you’re paying attention to your statement, questions are going to arise. Align yourself with a payment processor that offers 24/7 in-house customer service, so you always have the resources you need to make an informed decision.

Plugging into Payments: Developer Tools, Payment APIs and SDKs to Simplify Commerce

Developing for a commerce business can be challenging today. There are more ways for consumers to shop and buy than ever before, including in-person, online, and mobile to name the big three. But there are others as well: voice-activated payments, for example, or buying groceries from your refrigerator.

Businesses need all of these channels to work seamlessly together so that consumers can shop in one channel and buy in another. To the consumer, this experience should just work. To the business, it requires developer know-how and support.

At Green Payments, we have a developer-first mindset. If developers can’t plug into our payment gateways or easily understand our payment APIs and SDKs, the partnership between your business and us as the payments provider would not be successful. So we prioritize making sure that the documentation and tools are simple to use and easy to integrate.

Prebuilt to fully custom developer tools

Every business has different needs for implementing payments. For example, small businesses tend to need simple plug-ins whereas large multinationals may have advanced customization needs. That’s why our developer tools range from plug-and-play payment SDKs to completely customizable payment APIs. And as your business grows, our tools meet your needs at any stage of growth.

Through our developer portal, we provide the payment SDKs, APIs, libraries, documentation, and sample source code you need to integrate payments into any commerce channel–in almost any development language. For example:

  • In person. Leverage a pre-built and pre-certified EMV application with an API layer that securely handles chip interaction for payments, reducing your PCI DSS scope and eliminating PA-DSS scope for the POS software.
  • Ecommerce. SDKs and APIs to create an online and mobile check out, implement recurring payments, enable gift and loyalty payments, in addition to other major payment types from credit and debit cards and ACH to digital wallets. Along with plugins for leading carts and online ordering.
  • IoT. API and SDKs for payments integration from a variety of payment types including digital wallets, stored value wallets, and subscription payments.

Serious about security

Easy integration is key–and so is security. As you can imagine, when you’re dealing with people’s money and personal information, there are stringent security measures and protocols to follow to ensure your customers’ protection. The governing body for security standards in payments is called the PCI Security Standards Council. They “develop standards and supporting services that drive education, awareness and effective implementation by stakeholders.”

We’re a certified level 1 PCI DSS service provider, meaning that the security protections we put into place meet applicable PCI standards. Our payment solutions come embedded with encryption, tokenization, and/or 3D Secure technology that help guard against fraud and breaches. That way, you can be assured that our payments environments are secure, in every channel. And when new regulations are put into place or old ones are updated, we make the appropriate adjustments to our environment, so you’re covered.

Our payment tools and resources are built so you can work quickly and independently. In some cases, you can be up in running in as little as 10 minutes. But for the head-scratching problem you just can’t solve, we’re always on hand to help. From planning and technical implementation to ongoing optimization, our developers are ready to dig in and get you the answers you need.

Commerce and Payment Trends from the Experts

As businesses navigated through unprecedented change over the past year, digital commerce accelerated at a breathtaking pace. Consumers adjusted the ways they shop and pay practically overnight to digitally-driven means. Payment technologies and solutions to support soaring demand for online and contactless ordering buoyed businesses through months of disruption.

As we shift focus to the year ahead, we spoke with our industry-leading experts from Global Payments, along with Visa, Google Pay and American Express to learn how these pandemic-driven changes will continue to impact commerce as well as other emerging trends in 2021.

Together, we identified five commerce and payment trends that will underscore the need for businesses to remain agile to respond to consumers’ evolving preferences and deliver exceptional commerce experiences.

Trend 1: Contactless payment adoption accelerates

Already on the verge of widespread adoption, contactless payments have gone mainstream. Initially favored by digital-native millennials, the ability to “tap-and-go” is now preferred across generations, including notoriously tech-averse baby boomers. As a result, “Contactless payments have become a driving differentiator,” according to The Visa Back to Business Study.

As more shoppers swap out their top-of-wallet cards for a contactless version, we predict more widespread and sustainable adoption. While safety was a key driver of contactless payment adoption in 2020, convenience and simplicity will drive future growth.

Read the full trend on contactless payments in our 2021 Commerce and Payment Trends Report.

Trend 2: Omnichannel options expand

The pandemic accelerated the shift away from physical stores to digital shopping by roughly five years, according to IBM. In 2020 this meant businesses were swiftly rolling out safety-focused solutions like curbside pickup and QR code contactless ordering.

As a result, savvy businesses will need to double down on omnichannel commerce strategies that deliver superior shopping experiences online and in person.

Read the full trend on omnichannel commerce in our 2021 Commerce and Payment Trends Report.

Trend 3: Embedded fintech dominates across industries

Embedded fintech describes the seamless integration of payments and financial services and products into software. With an embedded fintech approach to business, businesses of all kinds — from restaurants to medical practices — can create value well beyond the transaction.

We expect that more businesses will adopt embedded fintech approaches to drive revenue in 2021. Venture firm Andreessen Horowitz estimates that by embedding fintech within the overall offering, businesses will increase a customer’s profitability by up to 5x the original revenue stream.

Read the full trend on embedded fintech in our 2021 Commerce and Payment Trends Report.

“By embedding fintech within the overall offering, businesses will increase the profitability of a customer by up to 5x the original revenue stream.” (Source: Andreessen Horowitz)

Trend 4: Advances in technology help businesses keep pace with digital commerce

The breakneck pace of digital commerce transformation in 2020 will prompt businesses to embrace technologies strategically to drive sustainable growth.

The innovations to watch in 2021? Cloud technology and open banking. Moving to the cloud is not a matter of if, say our experts, but of how. Getting this combination right takes work, but the payoffs are substantial. Open banking technology offers speed and convenience by automating connections between financial entities through APIs. For instance, it can allow a payment provider to quickly and securely check a shopper’s bank account balance in real-time — with the shopper’s permission — before approving a transaction, improving the customer experience and protecting the business from fraud.

Read the full trend on technology in our 2021 Commerce and Payment Trends Report.

Trend 5: A focus on financial inclusion

The same payment technologies and solutions that helped consumers shift to digital commerce during the pandemic are also critical to paving the path to financial inclusion.

Konrad Chan, president of Asia Pacific at Global Payments said, “Digital wallets help everyone participate in commerce, including the underbanked or unbanked.”

A range of innovative payment solutions like digital wallet payments and prepaid products are being leveraged worldwide to help these populations.

However, there’s more work to be done.

Read the full trend on financial inclusion in our 2021 Commerce and Payment Trends Report.

Are you prepared to embrace commerce in 2021?

While the global health crisis ushered in a seismic shift for digital commerce in 2020, the trends of 2021 will take digital experiences to the next level and pave the way for broader participation in the digital economy.

Turn Transaction Disputes Into a Competitive Advantage

It’s time to reframe transaction disputes as an important opportunity to build customer satisfaction and loyalty.

Not many business owners are necessarily excited when customers challenge a transaction. However, resolving your customers’ questions and concerns before they turn into a formal transaction dispute can transform a challenging situation into an opportunity for greater customer satisfaction.

And remember, when a customer initiates a transaction dispute on their credit or debit account with their issuer, the outcome is usually in their favor. So keep the relationship strong with your customer and save yourself the chargeback fee by resolving matters before the card issuer gets involved.

Considered over the long term, managing disputes well translates into stronger loyalty for future purchases — not to mention a boost to your brand reputation for being responsive and solution-oriented.

Transaction disputes are on the rise

Transaction disputes — when your customer challenges a transaction with their card issuer — are on the rise globally, but recent data from the United States illustrates their runaway growth. Out of 66 billion transactions, about 25 million disputes occur each year, and that volume is on track to grow to 33 million transactions by 2022.

When a customer reaches out to you to inquire about a charge on their account, it’s typically for good reason. Therefore, it’s helpful to approach every customer dispute from a place of empathy and a desire to help. Sometimes it’s an error on the part of your business or employee. Other times, the customer’s financial situation has changed, and they can no longer afford an item. Maybe another family member made the purchase, unbeknownst to the cardholder.

Now more than ever, it’s important to work with your customers to place their experiences at the forefront of your business strategy. Recent research from the University of Newcastle underscores that handling customer complaints adeptly has a tangible dollar value. The return on investment for managing complaints effectively was as high as 1,000%, or $10 for every dollar spent, according to the research, proving that even though you’re having to refund a purchase in the short term, your empathy will pay off in the long run.

All in all, it’s best to issue a refund before it becomes a disputed transaction. If the customer ends up disputing the charge with their card issuer and you lose the case, you’ll be responsible for paying back the cost of the sale, as well as the chargeback fee.

You may also lose a future customer who would have otherwise sought out your business next time they were looking to make a purchase.

Resolving disputes with digital tools

Leading businesses are treating disputes as an opportunity to delight their customers by meeting their needs. However, if you do find yourself in a situation where you need to resolve a disputed transaction, make sure you have the right technology to help you manage dispute responses and reach resolutions quickly and efficiently.

Look for a well-designed and technology-forward disputes management system that:

Harnesses the cloud: Access your disputes activity anytime, on any device, with an intuitive, at-a-glance viewing experience with crystal-clear graphical representations.

Uses artificial intelligence: AI-powered probability scoring can advise on your likelihood of success with any particular dispute. After all, it can take the same amount of time to address a $5 charge as it does a $500 one, which means businesses should prioritize which cases are most important.

Issues timely alerts: It’s tough to stay on track of your disputes activity given everything on your to-do list. Look for a system that keeps you current with automated reminders and can even take action proactively when no input is needed from you.

Stores data for the long haul: Aim to have access to your customers’ data for up to 13 months, so you’re covered if you need to research transaction information in the future.

Uses intelligently guided workflows: It’s important that the workflows in your disputes management tool comply with network standards and processes.

Offers robust reporting: Make sure you have access to reports on milestones and timing requirements at your fingertips.

Transaction disputes can win customers

Disputes can be a hurdle, but keep in mind that resolving your customers’ transaction disputes can actually give you a competitive edge. That ultimately translates into stronger customer satisfaction, creates an improved perception of your brand and frees up time and energy to do what’s most important — run your business.

10 Ways to Meet Customer Payment Preferences This Holiday Season

Anticipation is high as businesses look to experience their first holiday shopping season in the midst of a global pandemic. There’s been a marked shift to shopping online and omnichannel retail experiences since the pandemic took hold and these channels will continue to be the most important touchpoints with consumers this holiday shopping season. In fact, ecommerce is forecasted to surge to 35% of total retail sales, a 25% increase over last year.

According to a Salesforce consumer research study, nearly half of global shoppers are more interested in holiday shopping online this year over last year. That’s not the only digital channel expected to increase. Thirty-seven percent of consumers expressed more interest in shopping in-app; 32% said they would be more likely to shop online and pick up in-store and 22% said they would shop for the holidays via social media. Since early this year, businesses worldwide have been responding to new consumer shopping preferences that prioritize health and safety by enabling no-contact commerce. From offering online and mobile ordering to in-app purchasing, subscription services, and buy online, pick up in-store, businesses have had to shift quickly and allocate resources to digital and omnichannel commerce.

Operating a digital-first commerce strategy will help businesses be more successful at garnering sales this holiday season, especially as in-store holiday shopping is predicted to decline by as much as 25%, according to ShopperTrak. However, just having these channels up and running may not be enough during a time when competition for sales is at an all-time high.

Businesses will compete better in the critical holidays months by focusing on creating frictionless payment experiences for their customers. Why? Because only about 3 in 10 customers actually complete an online sale after it’s been initiated. The other 7 in 10 change their mind before completing the purchase, meaning the sale is lost. Creating less friction in the payment process can help businesses exceed this benchmark.

Frictionless Payments To Fuel Holiday Sales

Offer the right payments mix

It’s no longer enough to just offer the tried-and-true payment methods of debit and credit cards, especially now during the coronavirus pandemic. Your customers are using several payment methods to make purchases and it’s all based on their preferences. From digital wallets to contactless transactions and installment payment options, consumers have more choices to select from than ever. And they go with what best suits their individual needs.

Understanding customer payment trends can help businesses anticipate and prepare for changes in their customer preferences. For example, according to a payment study by Deloitte Insights referencing research from Statista, the value of digital transactions globally reached $4.1 trillion USD in 2019 which is expected to grow by a compounded annual growth rate of about 13 percent over the next four years. This trend means your customer’s preference is shifting to digital methods and you need to be ready.

Couple research with your own data and analytics to see how your specific customers are transacting will help you offer the right payment mix.

Make checkout navigation easy and add a progress indicator

It used to be that to complete an online sale, your customers would have to stumble through multiple inefficient steps to submit their payment information to make a purchase. Not anymore. Shopping carts have gotten more effective at acquiring the information you need without making it burdensome on the customer. To this end, only ask for what is needed to get a positive purchase confirmation. And make sure to be clear about the steps in the process with a visual indicator to signal how much progress in the payment process your customer has made.

Implement card storage

If you’re not asking your customers if they want you to pre-populate their payment details for them, then think about implementing card storage. Card storage is when you autofill your customer’s payment details into the appropriate required fields of your ecommerce site. This feature cuts down the time your customer has to spend typing in their information. Applying this feature overcomes another obstacle to successfully checking out.

Automatically update card information

Allowing your customers to place their card on file with your ecommerce site is a great way to make the payment process quick and painless. Cards have an expiration date and your customers are not going to remember to update you when the expiration date has occurred. That’s why it’s important to use Account Updater services. Each of the card brands offers these services and your payments provider can extend these benefits to you so that when your customers’ account information changes, the new card information will automatically update. And you get to keep making sales.

Brand your checkout

It’s easy to forget to brand your checkout, especially when it isn’t hosted by you directly. It can feel disjointed when a customer goes from the ecommerce shopping experience to the payments page. You should create as close to the same branded experience across the entire ecommerce site as possible. Have your logo on the payment page and carry through your brand look and feel so your customers are confident they are buying from your trusted business.

Offer guest checkout

The fewer number of steps your customers have to take to make a purchase, the better, so requiring them to sign in before they can complete a purchase adds another potentially inconvenient step to the process. A study found that 28% of customers abandoned checkout if they were asked to register for an account to complete the purchase. Always give your customers the option to complete their purchase with a guest checkout to remove this barrier.

Provide one-click shopping

If your customers do opt to create an account with you, you can extend the benefit of one-click shopping. One-click shopping refers to the action of quickly taking your customers from the shopping cart to a successful purchase in just one click. It’s executed by storing their payment and personal details with you in their account. When they’re ready to make a purchase, all they have to do is click a “buy-in-one-click” button.

Remember their purchase history

Businesses that track their customer’s buying history are at a great advantage to encourage repeat purchases. Once you know what your customers buy from you, you can curate a personalized experience just for them. You can offer similar products that complement their purchase or suggest they buy that same product again, send coupons to say thank you, provide exclusive first-looks and the list goes on. A powerful reporting tool like Global Payments Merchant Portal can help you unlock the customer data to create an even better experience and keep them coming back.

Think mobile first

Mobile commerce (mcommerce) is a bigger proportion of ecommerce sales than ever. At $314 billion of sales projected for the year, mcommerce represents 44% of all ecommerce sales. To best capture mcommerce sales, building your mobile site and checkout with a mobile-first mindset is critical. Responsive design can help you optimize your website for a smaller screen, but that’s only the start.

Mobile-first optimizations include keeping the navigation simple, reducing the amount of content on any one page and increasing your mobile site’s speed. These are all important factors for encouraging your customers to shop with you via your mobile channel.

At checkout, simplify form fields, keep them short and straightforward and eliminate any other distractions from the page. When customers are filling out a form, they shouldn’t see anything else. When they’re ready to click “buy”, the button should be easy to see and clickable from any part of the button. Additionally, avoid putting other calls to action nearby. The buy button should be prominent and encourage that customer to complete their purchase.

Leverage leading authentication and instill trust through security

3D Secure or 3DS is the umbrella name for each of the card schemes’ branded online payment authentication solutions: Visa Secure, Mastercard Identity Check, American Express Safekey, J/Secure for JCB and ProtectBuy for Discover and Diners International. It is an authentication protocol that was designed to reduce fraud, increase customer security and decrease merchant liability to chargebacks.

An advanced version of 3D Secure is now available called 3D Secure 2 (3DS2), which was developed to meet the frictionless expectations of the modern payments environment. Enabling 3D Secure 2 in your business is an extra layer of protection. Not only is it a nice to have, now it’s the only card authentication method that meets the European Strong Customer Authentication (SCA) regulation.

Ensuring your security measures are top-notch helps you build trust in your brand. Here’s how to reinforce that with your customers:

  • Display trust logos of verified financial brands like those of Visa, Mastercard, American Express, PayPal and WeChat Pay at your checkout and throughout your website.
  • Communicate that your business is PCI compliant at checkout with the PCI-DSS trust logo.
  • Explain why you’re asking your customers to verify their payment information with 3D Secure 2.
  • Represent your SSL certificate with a lock in the URL bar of the browser.

Use these ideas to smooth out any friction in your digital commerce channels so you can delight your customers and increase sales this holiday shopping season.