Debit Card Processing Explained

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Debit card processing is a topic that often gets overlooked when it comes to payment processing. Come with us as we take an in-depth look into the ins and outs of processing debit cards.

debit card payment

Did you know that debit cards outnumber credit cards more than 5:1 in the United States? That means for every credit card in use there are 5 debit cards that have been issued. 

It’s a staggering number for most of us because when we think paying with plastic, oftentimes we think credit card first.

Number of Debit vs. Credit Cards in Use Today

At the time of this writing, there are a total of 1.06 billion credit cards in the USA, and 5.61 billion debit cards in the USA.

Why Use Debit Cards Instead Of Credit Cards?

Convenience

Debit cards are far more convenient than simply carrying cash. They provide quicker purchases, with just a swipe or insertion of the card closing the sale. A single debit card represents all of the cash that’s in your bank account and keeps your money secure with a required pin for purchases.

easily track expenses

With debit cards, you no longer have to worry about keeping track of each and every purchase you make. Instead, most financial institutions have applications that store all the purchases you’ve made and allow you to look at them at any time online. 

This way, you no longer have to manually track each purchase. Instead, allow the convenience of an app to easily track each debit card purchase.

no interest

Because all of the money that you’re spending on a debit card is money that you own, rather than being borrowed, there is no interest on any of your purchases. 

This could potentially save you hundreds to thousands of dollars over time as you begin to spend more on your debit card, rather than your credit card.

stop overspending habits

With a debit card, you can only spend what is currently in your account. This keeps you from overspending and makes it harder to fall into debt. When using a credit card, it’s easy to keep spending well past your mental limit to the card’s set limit, and that can bring trouble.

no debt

With debit cards, you can only spend the money that you currently have in that financial account. This all but guarantees that you won’t find yourself spending more than you can afford to spend. 

Credit cards will let you spend up to your pre-approved amount, even if you don’t have the money to pay back each purchase. With debit cards, you don’t have the option to spend more than you can afford.

security

Since debit cards require a pin number to make a purchase, your money is safe in the bank while you have your debit card with you. If you lose your card, thieves can’t use your card without your pin, so your money is safe.

Debit Card and Credit Card Usage Explained

Debit cards and credit cards are different in terms of where the money comes from. With one, you’re paying with borrowed money and with the other, you’re using your money. 

When you use a credit card, you are making each purchase with borrowed money. The credit card issuing bank is using their money to pay for the purchases you put on your card and sends you a bill for your purchases at the end of the month. 

Most credit cards have a limit that you are able to spend based on your credit score and banking history.

For the business that’s accepting a credit card from you, their credit card processing fees also tend to be higher than debit card processing fees. This means that each business you pay with a credit card is losing a higher percentage of their payment when you pay with a credit card.

How Debit Card Processing Works

With debit cards, you can only spend the money that you possess in your checking or savings account. The only spending cap that you can hit is the current balance that you have in your account.

When you present your debit card as payment, the card machine checks your account balance to determine whether to proceed with the purchase. If the funds are not present, the card will be declined. If the funds are present, the transaction will be authorized and the purchase will go through.

Do Debit Cards Have Processing Fees?

There are fees for processing a debit card, but they are much less than the fees for processing a credit card. Purchases protected by a pin that’s required during the transaction have a lower interchange rate because of the lower risk of the payment offered.

Interchange rates offered to the business will vary by processor, but usually stay much more consistent and predictable than credit card interchange rates tend to be. Businesses tend to prefer that their customers pay with a debit card instead of a credit card because of the smaller fees associated with the processing of that payment method.

What Happens if I Run My Debit Card as Credit?

If you run your debit card as credit on a terminal, it will still take the funds out of your account in the exact same way as if you had run it as debit. 

So don’t be alarmed the next time you accidentally run your debit card as credit. It will take the funds out of your account just the same as any other debit card purchase.

Is it Better to Use Debit or Credit?

This, for the most part, is entirely up to the preference of you the customer. It is usually safer to use a debit card, as it will keep you from overspending past what you can pay back.

If your goal is to build up a solid credit score or garner rewards points, though, you might find credit cards to be the better option. It all depends on your own personal preference and what you decide is right for you to use.

Do Debit Card Transactions Go Through Immediately?

Debit card transactions usually go through a period where the purchase is pending before the funds are removed from your account. 

The funds will not be taken out of your account immediately. Once a debit card transaction is made and the purchase becomes pending, the funds will still technically be in your account until the transaction is finalized. 

The time that it takes for each purchase to go through can vary depending on the cost of the product, where the product was purchased, and what the product is.

What Terminal Systems Accept Debit Cards?

There are plenty of different systems and terminals used to accept debit cards, including mobile payment processing apps.

If you want to accept debit cards online, for example, you may want to look into a virtual terminal. Virtual terminals will give you access to online payment acceptance through the use of shopping cart software.

You won’t need a separate POS system to accept both credit and debit cards. Instead, one payment gateway will be able to process both forms of payments, giving you one point of sale for all card present purchase types.

How Much Does it Cost a Business to Accept Debit Cards?

In 2018, the average cost to accept a credit card was 24 cents in the USA, according to the Federal Reserve.

That number will vary, depending on some factors like the issuing bank and the debit interchange rates. 

The interchange rate will be the most likely factor in determining the cost that the business must pay per transaction. However, as a general rule, businesses are charged around 24 cents on each purchase made via a debit card.

Would a Business Rather Have Me Pay With a Debit or Credit Card?

Businesses would rather you pay with a debit card instead of a credit card. On average, businesses are charged around 24 cents for a debit card purchase. Credit card processing fees are usually much higher.

The rate that a business is charged on a credit card purchase will vary depending on the type of card in use. For instance, a common cost to accept a credit card would be somewhere around 2% of the purchase plus 10 cents per swipe. 

On a $20 purchase, for example, the cost that the business would have to pay to accept that credit card would be 50 cents. So, to accept your credit card instead of a debit card, the business would be sacrificing 26 cents, making the majority of businesses prefer to accept debit cards over credit cards.

What Are the Advantages of Debit Cards?

There are many advantages of debit cards. They make it far easier to carry money, having you simply carry a piece of plastic in your wallet rather than a bunch of different bills and coins. 

They are also a quicker payment method than cash. Other payment solutions, like cash, can take a long time to complete the transaction. Instead of pulling all of your money out, counting it, and then having the cashier make the correct amount of change, you simply swipe or insert a card and you’re done. 

Many debit cards can also be added to mobile wallets. Making a mobile payment straight from your phone is just about the fastest way to make a payment leveraging current technology.

Finally, debit cards make tracking purchases much easier and simpler than if you were to do it manually. All of your purchases are conveniently stored on your card’s mobile application or website. With debit card purchases, there is no worrying about forgetting to document a purchase or adding the numbers incorrectly. Current account technology manages your financial purchases for you so you don’t have to worry about it.

Why Would I Want to Use a Debit Card Instead of a Credit Card?

As previously mentioned, debit cards require that you spend money that you already have, keeping you accountable for the money that you spend. There are certainly still advantages to using a credit card, like building a good credit score, but with a debit card, you are sure to stay out of debt. 

Debit cards do a great job of making sure that you don’t have to deal with the inconvenience of cash, while also paying with money that you already have.

Why Do I Need to Use a Pin Number When I Pay With a Debit Card?

PIN numbers keep you safe from card theft. If your debit card didn’t require that you have a PIN number, you would be more susceptible to credit card theft. Credit card thieves need to know your PIN number before making an in-person purchase.

PIN numbers, just like credit card declined codes, are there to protect everyone involved in a credit or debit transaction. 

Some businesses, instead of a PIN number, will require that the customer sign. Signature debit is often more expensive and less secure, so it is not as highly regarded as PIN debit purchases. 

What does regulated debit mean?

The Dodd-Frank Wall Street Reform act changed the amount of fees that debit cards can be subject to. Regulated debit cards cost the accepting merchant .05% and $.21 per transaction. Unregulated debit cards are subject to 1.60% and $.05 per transaction.

What are the Advantages of Accepting Debit Cards?

  • Debit cards have a lower processing cost than credit cards
  • Customers can’t spend more than they can afford
  • Purchases are protected by PIN numbers, protecting everyone involved
  • Offer more convenience to customers that aren’t carrying cash
  • Easy to create or add to transaction history
  • Begin accepting online debit card and e-commerce purchases
  • Quicker time to approve purchases

Lower Your Debit Card Fees With Dual Payments

Ready to begin accepting card purchases at your business? Wanting to switch to a processor that puts you first?

Merchant account providers have a nasty habit of giving you an introductory processing rate and then steadily increasing your rate once they’ve locked you into a long term contract. With Dual Payments,  you process debit and credit transactions at the same rate we quote you for the life of your business. 

We work only on month-to-month contracts. This means that if you don’t like our service or our rates ever change, you can walk away at any point. If you ever decide to take your credit or debit card payment processing elsewhere, you won’t be hit with a cancellation or termination convenience fee. 

There are many credit and debit processing solutions out there, but we have set up our business so that we work to earn your business month after month. 

With free credit card terminals and our zero fee processing program, we work to completely eliminate your processing fees so that you can turn any fees you’re paying back into profit.

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Example of High Risk Merchants

  • 1-900 Phone companies – If you’re the type of company that charges people to have a chat on the phone, you’ll be considered high risk.
  • Adult Bookstores – Clearly a part of the adult entertainment industry, and an easy mark for the high risk tag.
  • Adult Entertainment – Any business labeled with the “adult” descriptor will automatically be assigned a high risk status.
  • Adult Toys – As “adult” is in the name, it’s an easy target for association with the adult entertainment market.
  • Airline Industry – Due to cancellations on high ticket purchases, this will put your airline company in the high risk category
  • Amazon Stores – By having a high rate of return, Amazon stores are seen as high risk.
  • Ammo Sales – Association with the weapons industry guarantees high risk status.
  • Annual Contracts – Any time an annual contract is involved it can be considered highrisk because most consumers forget they signed up and chance of chargeback can be high.
  • Antiques – With a high average ticket per item, antiques are considered a risky merchant type.
  • Astrology – The study of the celestial bodies and the influence on human affairs can be a chargeback target if customers feel like they aren’t getting the answers they want.
  • Auctions – Because of the nature of bidding on a product and not having a set price the risk level goes up.
  • Autographed Collectables – There is almost always a question as to whether an autograph is authentic, and therefore chargebacks are much higher in this industry.
  • Automotive Brokers – Brokers of automobiles have a very high average ticket are are therefore of higher risk.
  • Bankruptcy Attorneys – Since the people who are working with bankruptcy attorneys are usually in financial trouble, the odds that a payment would be charged back is higher.
  • Betting Services – In many states betting is illegal but for the legal states betting with a credit card has huge chargeback implications.
  • Brokering – When a third party is involved with selling a product the risk level goes up ten fold.
  • Business Loans (Merchant Cash Advances) – Loaning money is always risky, but with business loans and startup lending, high risk is present by the nature of the business.
  • Casino – Just like a betting service, if a customer gambles with their credit card the chargeback rate sky rockets.
  • CBD Products – CBD itself poses high chargebacks because of the legitimacy of the product and the health benefits promised.
  • CBD E commerce – CBD E Commerce has twice the charge back of retail CBD because many consumers don’t feel like the product they receive gives them the benefits promised.
  • Check Cashing (Check Processing) – The level of fraud in check cashing and cash advances is what gives this industry a higher risk consideration.
  • Cigarettes – With higher levels of risk for theft and criminal activity, cigarette sales are deemed high risk.
  • Collection Agencies (Collection Agency) – Many banks see collections as an unsustainable business model that is many times unreliable.
  • Collectible Coins – A higher level of chargeback in this industry gives it a high risk tag.
  • Collectible Currency – Due to the level of inauthentic collectibles, the risk of chargebacks are much higher with collectibles.
  • Copyrighted eBooks – When someone sells something copyrighted without permission many legal issues can arise.
  • Coupon Programs – With many coupon programs the coupons expire and once they expire the consumer wants the money back they spend.
  • Credit Counseling – Due to their clients usually being in financial problems, this industry is fraught with non-payment and fraud.
  • Credit Protection – Most people that need credit protection are bad with money so chargebacks abound.
  • Credit Repair – If a consumer needs credit repair then chances are they are a high risk for chargebacks.
  • Currency Sales – Many businesses that exchange currency do it at incorrect rates hence more chargebacks.
  • Dating Services – Dating is a volatile industry, and is also lumped in with the adult entertainment industry, making it a high risk account.
  • Debt Collection Services – As the collection of debt isn’t always possible, this industry retains the tag of risky.
  • Debt Consolidation Services (Debt Consolidators) – Consolidating debt is a challenging business and as debt is usually the problem, it’s seen as unsecure from a payment perspective.
  • Debt Repair Services – Since the clients of debt repair services are usually having financial challenges, it makes this industry seem a higher risk.
  • Discount Health Programs – Many people don’t feel they are really getting a discount so they try to get their money back and if they don’t the chargebacks sky rocket.
  • Discount Medical Care Programs – Just like the discount health programs if they don’t save the consumer wants their money back.
  • Drug Paraphernalia – Anything that is associated with the drug trade is considered high risk. Offshore merchant accounts are commonly used for this type of business.
  • E Commerce – As the source of the payment is unverifiable at the point of sale, any transaction without the card present has a higher risk of credit card fraud.
  • Ebay Stores – Many people sell items that aren’t as described so chargebacks can be an issue.
  • Electronic cigarettes – much like traditional cigarettes, e-cigarette sales are also deemed high risk.
  • Electronics – This industry has a much higher ticket compared with many other businesses. A chargeback for a $3,000 tv or two and your account can be in jeopardy rather quickly.
  • Escort Services – This is deemed a part of the adult entertainment industry and therefore needs a high risk merchant account and payment solution.
  • Event Ticket Brokers – If a customer buys a ticket and doesn’t use it they feel like they can charge the transaction back.
  • Extended Warranty Companies – Warranties are rarely used so people try to charge back the money that has been spent paying for them.
  • Federal Firearms License Dealers – Any organization associated with guns or firearms is automatically considered in this category.
  • Fantasy Sports Websites – Just like gambling, if a person starts to lose too often they try and charge back the transaction.
  • Finance Brokers – The entire financing industry is risky. By simply extending credit to other individuals, this business is betting that a majority of them will actually pay what they say they will.
  • Financial Advising/Consulting – The high risk tag on financial advisors isn’t about the advisors or their firm. It’s about the clientele and their current circumstances.
  • Financial Loan Modification Services – Due to a clientele in financial struggles, the high risk term is applied to any payments in this industry.
  • Financial Planning – Anything that includes risk for the consumer can have consumer implications with chargebacks.
  • Financial Strategy – Another risk and reward category, if money is lost, consumers try charging back making this a high risk industry.
  • Fortune Tellers – When a person doesn’t hear what they want to hear, or what is told doesn’t happen, the fortune teller can receive huge chargebacks.
  • Furniture Sellers – High risk only when its custom furniture.
  • Gambling – If money is lost the chargebacks rise.
  • Gaming – Chargeback levels skyrocket when consumers don’t win.
  • Get Rich Quick Programs – It’s rather common in this industry for an individual to purchase the training and then chargeback their purchase saying it didn’t deliver on what was promised.
  • Google Stores – With a high rate of return on their items, Google stores are considered high risk.
  • Gun Sales (Firearm Sales) – The gun and projectile industry is automatically associated with high risk credit card processing.
  • High Average Ticket Sales – With any high average ticket, just a couple of chargebacks can mean a massive shift in how risky the account is deemed by the processor.
  • Home/Vacation Rentals – Many issues with chargebacks can take place if the consumer decides not to travel.
  • Horoscopes – Many people believe this is hocum so will chargeback transactions.
  • How To Programs – A common practice in this industry is to purchase the program and charge it back with the description that it didn’t deliver what it promised.
  • Hypnotists – Many merchants will charge back these transactions if results they hoped for were not met.
  • Import/Export Business – Another example of taking goods over country borders which automatically brings in additional risk to any processing account.
  • Indirect Financial Consulting – When using a third party to consult, the high risk status gives the processor fraud protection.
  • International Cargo – Any time you introduce a multi-country element to credit card processing, the ability for fraud to be introduced skyrockets.
  • International Merchants operating in the US – Since the merchant isn’t operating from the United States, there are many unknowns about what is happening on the other side of their business, thus increasing the risk.
  • International Shipping – Transporting goods between countries is risky and introduces all sorts of elements to the financial stability of any transaction.
  • Investment Books – consumers get upset if the investor isn’t right which can lead to chargebacks.
  • Investment Firms – As investments are never a “sure thing” this is considered a risky industry for having a merchant account.
  • Investment Strategy – Anything with future promises can lead to chargeback.
  • Knife Sales – weapons of any kind are automatically given high risk status.
  • Kratom E Commerce – Accepting payments online is high risk, and Kratom is a substance in the health and wellness industry, which is also considered high risk.
  • Life Coaching – With no tangible goods involved in the transaction, life coaching is considered high risk.
  • Lingerie Businesses – Associated with the adult entertainment industry, chargebacks abound.
  • Lotteries – In most states you can buy lottery tickets with a credit card but if you’re allowed to and the ticket is not a winner, consumers try to chargeback the transactions.
  • Magazine Sales – Many magazine sales are recurring subscriptions, which can have issues with chargebacks.
  • Magazine Subscriptions – Same as magazine sales chargebacks can be huge when a recurring subscription happens. (often referred to as recurring billing.)
  • Mail Order Companies – When something is ordered through the mail chargeback risk can go up.
  • Marijuana Dispensaries – As marijuana isn’t a legal substance in every state, this is considered high risk due to the legality of the product. Cannabis credit card processing is available through Shift Processing.
  • Matchmaking Services – Another branch of the dating tree, and often associated with the adult entertainment industry.
  • Medical Devices – If a medical device doesn’t do what’s promised the purchaser may chargeback the transaction.
  • Membership Organizations – This is another instance of where the transactions don’t have any tangible product and are easily charged back to the merchant account.
  • Merchants on the MATCH list – If you are a merchant who has been reported to the MATCH list (Member Alert to Control High Risk Merchants) or the TMF (Terminated Merchant File) you are given high risk status.
  • Merchants with Poor Credit – Merchant accounts are given based on the credit score of the business owner. It’s assumed that the business owner is going to be making the financial decisions for the business, and a poor credit score reflects on the viability of any business transactions.
  • Modeling Agencies – At many agencies models are promised the world and it doesn’t happen. The consumer then wants their money back.
  • Movie Downloads – Transference of a digital product is considered of higher risk. Also, rarely is a physical card present at time of purchase.
  • Multilevel Marketing Sales – Often associated with pyramid schemes, MLM sales are considered a risky business.
  • Music Downloads – Purchasing any digital product is considered to be of higher risk than a physical transaction. Most of the time the card is not present in a digital transaction using a shopping cart.
  • Not A US Citizen Doing Business In The US – It’s possible to get a merchant account without a US social security number, but not having a SSN will increase the risk the processor will have in issuing a merchant account for your business.
  • Online Adult Membership Sites – If you’re running a website that is adult themed and requires payment for access, this is a highly volatile account and definitely high risk.
  • Offshore Corporations (Offshore Merchants) – The international element is what gives the high risk tag when looking for domestic merchant accounts.
  • Online Gambling (Online Gaming) – Without a card being present and gambling as the activity, there are two reasons why this would be on this list. Online payment alone is risky even without the gambling element.
  • Overseas Exporting Services – The introduction of the international element is what gains access to this list.
  • Pawn Shops – There’s a general stigma that goes along with pawn shops, and it’s reflected in their assignment to the high risk processors list.
  • Penny Auction Sites – Even though the customers are usually bidding at only a penny more per bid, users will commonly charge back the transaction when they don’t win.
  • Pepper Spray – Considered a type of weapon, pepper spray vendors are considered risky.
  • Points Programs – Points programs that cost money can cause chargeback issues if points are not used.
  • Pornographic Merchants – If you’re a part of the adult entertainment industry in any way, you’re considered high risk.
  • Precious Metals – Counterfeit metals can be a problem in this industry, making it more risky to accept payments for.
  • Prepaid Calling Cards – Anything prepaid that a consumer may not use increases chargeback issues.
  • Prepaid Debit Cards – When they expire or are lost consumers want their money back.
  • Psychic Services – “Honey, did you visit a psychic? No babe, I don’t remember visiting a psychic.” I’ll just reverse that charge then.
  • Real Estate – A common target for scams and identity theft is how real estate makes this list.
  • Replica Products (Watches, Handbags, Wallets, Sunglasses, Etc…) – As the product being sold isn’t authentic to the original manufacturer, the percentage of requests for refund is much higher than a traditional merchant.
  • Rewards Programs – If rewards are not spent, the consumer wants the money back.
  • Self-Defense – Since the payment provided is for instruction and not a physical product, the self-defense industry makes this list.
  • Self-Hypnosis Services – Yet another instance where the goods being transferred are of a service and not a physical product.
  • SEO Services – With a high rate of request for refund, SEO agencies make this list.
  • Social Networking Sites – Just like a dating site, if a consumer does not get what they want from it, they always like to chargeback.
  • Software Downloads – The software industry makes their way on to this list because of the digital nature of the goods being sold.
  • Sports Forecasting – An example of paying for information and not for a product, and usually not in person where the card would be present for the transaction.
  • Startups – Every startup is considered risky, and the percentage of startups that make it is quite small compared to the number that fail.
  • Student Loans – With the cost of a college education continually on the rise, so is the percentage of loans that default and never receive payment.
  • Strip Clubs – Associated with the adult entertainment industry gains the strip club access to this list.
  • Stun Gun Sales – considered a type of weapon, which makes it a high risk merchant.
  • Supplement Sales – The request for refund in this industry is quite high due to the nature of the product.
  • Sweepstakes – “Hey, I entered a sweepstake and I didn’t win. I’d like my money back please.”
  • Talent Agencies – “I paid thousands of dollars for headshots and glamorous outfits and I haven’t gotten any paid gigs. Pay me back my money please.”
  • Telemarketing Services – Telemarketing services many times do not have the results the purchaser would like to see, so the services are charged back.
  • Telephone Order Sales – Anything ordered over the phone has a increased risk of chargeback.
  • Timeshare Companies – When timeshares aren’t used, people want their money back.
  • Travel Agencies – If trips are not taken, consumers would like their funds returned.
  • Travel Clubs – Many travel club discounts aren’t what they were promised, increasing risk for chargebacks.
  • Vacation Rental Brokers – Third party brokers on prepaid vacation can have issues when customers cancel their trips.
  • Vape Shops – The level of criminal activity and theft is higher with vape shop merchants and therefore carries a high risk label.
  • Vitamin Sales – If the vitamins don’t provide the results the merchant would like to see they chargeback the transactions.
  • Web Designer – Because this service is prone to chargebacks, it has been classified as high risk.
  • Weight Loss – Considered risky because the results aren’t really up to the company, but rather the individual has to stick to the plan to get results, often resulting in chargebacks.
  • Yahoo Stores – Since the goods sold through Yahoo can easily be returned, they are considered a risky merchant.

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