Small-business owners who use a point of sale (POS) system will be aware that there are fees for operating the system and taking card payments. This can make it difficult to understand the fees, as they are dependent on industry, transaction type and payment processor.
You will be charged a fee for PIN transactions and a fee for signature transactions to the card network. The payment processor will also charge you a fee. These are the factors that impact the total processing fee for debit cards.
Type of debit card transaction
You will typically be processing two types of debit card transactions: signature and PIN.
PIN debit is when the customer enters their personal identification number (or PIN) after inserting or swiping their debit card. For PIN debit transactions, the merchant does not usually require a signature.
PIN debit transactions are sometimes called “online debit transactions” since the payment information is processed through a debit network rather than the credit card network (Mastercard and Visa).
This transaction is when a debit or credit card is swiped. The customer will sign the receipt, instead of entering a PIN.
These types of transactions are processed by the Visa or Mastercard networks, and not the debit network.
It’s important to remember that although the transaction is treated as credit, funds are not borrowed as with a credit card. They are drawn from the customer’s checking account.
The debit card transaction type chosen by your customer will determine whether the payment is routed through a debit network, or a card network.
A debit network such as Interlink, Nyce, or Star will handle payment routing if your customer uses their PIN to pay with their debit card. A debit network charges fees that are dependent on the business industry and transaction size. While some debit networks have a maximum amount a business can pay, others do not.
However, signature transactions are routed through a card network such as Visa or Mastercard. Interchange fees are usually a percentage of the sale and a transaction fee.
Unregulated versus Debit Cards
The bank that issued the card will charge you for debit card processing fees based on whether it has $10 billion or less in assets.
The debit transaction fees for banks with assets exceeding $10 billion will be limited to 0.05% plus 21c, according to the Durbin Amendment 2011. These are known as regulated transactions. These debit transactions are exempt from this regulation if the bank has less than $10 million in assets. Variable interchange fees apply to these debit transactions, which are unregulated debits.
Interchange rates can change frequently over time, sometimes even twice a year. Visa and MasterCard, for example, update their interchange fees every two years. It is prudent to review interchange rates between different companies regularly to identify any fluctuations in debit card processing fees.
Payment processing fees
Your payment processor may charge you debit card merchant fees in addition to the interchange and debit network fees. The interchange fees are paid only to the issuing bank. Instead, payment processing companies charge an additional fee to process payments.
The payment processing rates for processors vary and are subject to two pricing models: interchange-plus or flat-rate. This is to account interchange fees, assessment fees and processor’s service charges.
These are the most popular payment processors, and the fees they charge.
Consult your payment processor
It can be difficult to calculate how much you are actually making from a sale due to the various interchange and payment processing charges. Accepting debit and credit cards is still a necessity, particularly with increasing usage of mobile payment apps, digital wallets, and contactless payments.
Contact your payment processor if you have any questions or are unsure about how much you’re being charged.
This article was originally published on Fundera, a subsidiary to NerdWallet.
Dan Marticio contributed this article.
Questions frequently asked
What is the cost of a debit card transaction?
According to data from 2021, the Federal Reserve System, the average interchange fee for debit cards was around 34 cents per transaction.
The fees you actually pay will depend on the merchant category, processing method used, card type, issuing bank size, and whether or not your customer uses a signature-based or PIN-based transaction.
Are debit cards subject to processing fees?
Yes. Yes. Debit card processing fees include interchange fees that vary depending on the card and bank as well as payment processing fees which vary according to the provider.
Is it possible for a business to charge a debit card fees?
A lot of state laws allow businesses to charge consumers an additional fee to use their credit cards. This is against the law in all states, even if the transaction is “credit span>”.