Are you getting the debit discounts you deserve?

by Neil Moncrief on March 17, 2009

When debit cards appeared on the scene a few years ago, merchants were told to expect big savings. When a customer pays with a debit card instead of a credit card, there’s an opportunity for you (the merchant) to save, but only if you know what you’re doing. Otherwise, you may end up paying more than necessary. In case your CC processor skipped “The DOs & DON’Ts of Debit Cards”, I’ll hit the high points and show you where you can find more information.

In the first scenario, a customer pays for a small purchase with her debit card. She knows her PIN number, and she’ll be happy to enter it (if you ask her to do so.) Should you ask? Should you even allow her the opportunity?

A typical fast-food restaurant is a good illustration of this scenario. Have you ever noticed that these restaurants never ask you to enter your PIN number when you pay for your order? There’s a good reason. If you entered your PIN number, the restaurant would actually pay more for your transaction. If your current processor never explained this, you may be wondering “Then what’s the point of a debit card?” Debit cards and PIN numbers CAN help you (the merchant) save money. The trick is knowing when to ask for the PIN number, and when to hide the PIN pad. I posted a more detailed article on HubPages that explains all you need to know about this topic.

The second scenario involves a merchant who isn’t set up to accept PIN numbers at all. Perhaps you (the merchant) don’t have a PIN pad attached to your terminal. Or perhaps you accept payments over the Internet or by phone. In those cases, there’s no possible way for your customers to enter a PIN number. Regardless of your situation, you should always pay less when your customers pay with debit cards.

Does your merchant account utilize tiered pricing? If you’re unsure, look for the terms Qualified, Mid-Qualified, and Non-Qualified. If you see any of these terms on your statement, you’ve got tiered pricing. Most merchant accounts group the several hundred or so Interchange rates into broad groups or tiers. That alone doesn’t indicate a problem. Just remember that debit card transactions always cost your processor less than credit card transactions. The problem occurs when your merchant account provider fails to pass the savings on to you. If you see the words Qualified, Mid-Qualified, and Non-Qualified, you should also see the words Qualified Debit (or just Debit.) And most importantly, your processor should be charging 20-30 basis points less for those transactions. For instance, if your Qualified transactions are charged at 1.70%, your Debit (or Qualified Debit) sales should be somewhere in the range of 1.40%-1.50%. Unfortunately, many credit card processors charge the same rate for both Qualified Debits and Qualified Credits, choosing instead to keep the difference for themselves.

I always pass the debit cards’ savings on to my clients, whether they are retail, e-commerce, or B2B. If you’re not sure how you’re being charged for debit cards, I’d be happy to look at a statement and explain it to you. If it turns out that your processor is applying fair rates to your debit card sales, then you probably have nothing to worry about. But if your processor is applying the higher credit card rates to your debit card sales (and keeping the extra profits for themselves), it may be time for you to move on.

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{ 1 comment… read it below or add one }

Kaley April 25, 2011 at 6:30 am

I’m not easily impressed. . . but that’s impriesnsg me! :)

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