Isn’t it obvious The banks loves signature debit transactions over PIN debit transactions because it makes the merchant pay them more money every month. They stand to make millions-largely at you starting a credit card processing company , the hant’s expense become a merchant services agent. Of course the banks won’t come out and say it but if you do the math, you’ll see it for yourself.
By no means am I telling you to take away your customers’ option of selecting signature debits; but there are ways of “steering” them to use their PIN. I’ll tell you how later but first let’s look at what signature and PIN transactions are.
PIN debit transactions allow customers to enter their Personal Identification Number into a PIN pad at the point of sale. While signature debit transactions call for customers to sign a receipt, just as you do with credit card transactions.
A credit card processing company will process PIN debit transactions over the networks of NYCE, STAR, Interlink and PULSE. The costs of these networks are lower than credit card networks. Once a customer swipes their check or debit card through the credit card terminal and enters their PIN, the transaction is authorized in real time, the funds are captured and money is transferred into the merchant’s account in 2 – 3 days.
Consumers prefer PIN debit for the cash-back option, security, money is instantly deducted from the consumers account, and the faster checkout process because there’s no signature needed. To the merchant there are advantages such as reduced credit card processing fees, reduced fraud, reduced charge backs and transactions cannot be downgraded to higher discounts rates (mid-qualified, non-qualified).
Signature debit transactions do not involve the use of a PIN. Debit or check cards are used everywhere credit cards are accepted, processed through the same networks as credit cards, and incur the same discount rates and transaction fees. Issuing banks love it when you have to pay them more money. That’s because signature transactions are more profitable for banks.
The interchange fees that banks get from merchants for processing signature payments are much higher than for PIN-based transactions. On a $100 purchase, for example, the bank that issued the card typically collects only about 20 cents in interchange fees when payments are made using a PIN. But the bank gets at least seven times more than that if the customer signs to authorize the purchase.
Not only are you paying more in fees each month but fraud and charge backs are prevalent with signature debit transactions. With just a signature, the cardholder’s identity is not authenticated. Unlike the PIN debit transactions, signature debits have a two step process in which your credit card processing company will authorize the transaction in real time. Then funds are deducted from a customer’s account once the merchant’s receipts are settled. It takes longer for the funds to be credited to the merchant.
A great way to move more transactions from signature debit to PIN debit – and keep you from paying more money to your credit card processing company – is a practice known as “steering”; which encourages customers to pay using methods that carry low transaction fees, such as PIN-based debit cards. This is perfectly legal, some of the world’s largest retailers have been steering customers to do PIN debit transactions for years.
Most consumers don’t know the difference between a PIN-debit and a signature-debit transaction, certainly have no idea of the cost differences to the merchant, and really don’t care. Make sure your merchant account provider sets up your account with a PIN pad so that you’re not paying as much in signature transactions to your credit card processing company.
The PIN pad will allow your customers to enter their PIN. It’s just a matter of asking your customers a simple question; “Credit or debit? ” I’ve been to restaurants that have a set dollar amount for credit or debit card usage. Any price below that dollar amount, the restaurant will only accept cash. I’m sure you’ve noticed when you use your debit card at “Wally World”, the PIN pad automatically reads, “Enter your PIN. ” It doesn’t give any other options.
Depending on what “steering” option you decide to use for your business please remember that you cannot prevent your customers from selecting the signature debit option if that is their choice. Providing your customers with convenience and choice will keep them coming back.
PIN debit transactions may be the best choice for a merchant but being able to give your customers a choice between PIN or Signature debits is the best option. Let’s face it, every month you’re going to have signature transaction fees on your monthly statement from your credit card processing company. You can’t eliminate it but you can reduce what you pay each month in credit card processing fees by using the practice of “steering”. PIN debits only incur a transaction fee whereas signature debits incur both transaction and discount rate fees, like credit cards.