A debit card can be processed as either a signature or PIN-based transaction and your business will incur different charges depending on which method you use.
So which is cheaper, PIN debit or signature debit?
A rough rule of thumb is that PIN debit transactions are cheaper for businesses with larger average transactions. Signature debit is cheaper for businesses with smaller average transactions. There are expections, but this can be generally applied as a quick way to gauge the lower cost.
Signature Debit
A signature debit transaction is when you process a debit card by having your customer sign the sales receipt instead of entering a PIN. It’s sometimes referred to as running the card “as credit” but it’s still considered a debit transaction. Some machines have a “bypass PIN” option, which turns the transaction into signature debit.
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 a personal identification number (PIN) to make a purchase. Processing debit cards using a PIN causes transactions 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.
View PIN debit network fees.
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.
For example, let’s assume that a business used CardFellow 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.
Durbin Amendment Cap
As part of a larger Wall Street Reform Act, a piece of legislation called the Durbin Amendment capped debit fees for banks with assets of $10 billion dollars or more. The Amendment capped the fee at 0.05% plus a $0.21 transaction fee. Banks with less than $10 billion in assets have not had their fees capped. The rates used in the examples above assume unregulated debit card pricing.
The Durbin Amendment has caused the card brands to create two sets of fees: one for regulated card-issuing banks, and another for unregulated card-issuing banks.
Business owners debate the pros and cons of Durbin, but it’s important to know how it affects your business. A downside to the amendment is its effect on businesses with small average transactions – those under $10. Because many consumers use debit cards for small transactions and many debit cards are subject to the regulated debit interchange rate, the 21 cent transaction fee takes a proportionally larger bite of the total.
Related Article: Small Tickets – The Durbin Downside.
Chargebacks
Costs aren’t the only consideration when deciding whether to accept debit. The possibility of cutting down on chargebacks may also appeal to some businesses. While it’s possible for a customer to initiate a chargeback on a debit card, it’s a more cumbersome process than initiating a chargeback on a credit card. Additionally, banks will not usually side with a customer during a chargeback if the customer used a PIN. That can cut down on instances of “friendly fraud,” or fraud where a cardholder fraudulently claims that they didn’t make a purchase that they actually did make.
Some businesses may wonder if they can choose to take only debit. If you decide to accept only debit, your processor can set that up through the card brands’ limited acceptance programs. However, there are some purchases for which customers prefer to use credit. Be sure to carefully consider the pros and cons of limited acceptance options.
Read more about Limited Acceptance for Credit or Debit Cards.
Nice calculator! Are “switch fees” included in the fee results for pin debit ? There was also some debate on whether switch fees were allowed to be charged post Durbin. Do you know if there’s any final word on whether they are allowed?
Great website!
Hi Angelo,
Thanks for your comments on CardFellow and the PIN debit vs. signature debit cost calculator. Switch fees are still charged post-Durbin, and switch fee are included in the calculator.
We have another useful calculator that covers the Durbin Amendment in more detail and shows debit charge savings before & after Durbin. You’ll likely find that information useful as well.
I’m in California. Can a merchant assess a surcharge fee of $0.50 if I purchase something using my ATM (pin debit) card? I thought this was illegal?
Hi Julie,
Merchants can not impose surcharges on debit card transactions. You can try informing the merchant directly, contacting your state Attorney General’s Office, or reaching out to Visa or MasterCard. Good luck!
Just curious, in NY can a business force you to put in a PIN when using a debit card? I got an oil change yesterday and I always complete signature transactions with my debit card because I earn rewards only when I do not enter my PIN. I was told that the merchant’s machine was not capable of signature debit transactions. I’m thinking that this is not right because I’m sure Walmart would love to do that if they could and I’ve never seen this before.
Hi Matt,
It would likely depend on the merchant’s agreement with the card company. (Walmart and Visa actually did have a legal battle about PIN-only debit entry, with Visa citing its contract with Walmart to claim that Walmart can’t require PIN debit.) Typically, the credit card brand on the debit card would want signature authorization permitted because that’s how they would make money, so I can’t imagine many situations where the card company would be okay with it, but it’s possible that the business is within its rights to do so, or they may just not know if they’re required to.
Is the PIN debit vs signature debit calculator still available? The link doesn’t seem to direct to it?
Hi John,
The calculator is not currently available. We hope to have a newer version in the future.
When will the calculator be available?
Hi Jill,
It’s not likely to be available for some time. You can use the general guidelines described in the article to determine when each method makes more sense for your business, or if you’re a CardFellow client, we can pull up your account information and assist.