The Complete Guide To Debit Card Processing Fees For Merchants (2024)

Dharma Merchant Services

Dharma Merchant Services is one of our favorite merchant account providers, offering remarkable transparency and fair pricing. The company uses interchange-plus pricing exclusively, so you’ll always reap the full benefit of lower PIN debit processing fees. Dharma offers a wide variety of credit card terminals, including the popular Clover Flex and numerous universal models from Dejavoo, Ingenico, and others. All terminals listed on Dharma’s website support chip + PIN payments, the most secure payment method available.

Dharma stands out for its flexible contract terms, offering true month-to-month billing to all users. The company also has an excellent reputation for providing top-notch customer support. It’s an excellent choice overall and can save you a significant amount of money if you accept a lot of debit card transactions. Our only cautions are that Dharma does not recommend its pricing structure for merchants processing less than $10,000/month, and it does not accept any high-risk merchants.

Helcim

Helcim stands out as one of the best credit card processors in the industry for small businesses. The company doesn’t charge a monthly account fee, making it an excellent choice for seasonal businesses or merchants who only occasionally accept a credit or debit card payment. Unlike Square and similar processors, Helcim uses interchange-plus pricing exclusively. This allows you to avoid overpaying for debit card transactions. While the company’s processing rates aren’t the cheapest we’ve found, they’re quite fair due to the absence of any recurring monthly or annual fees. Also, volume discounts are available that will save higher-volume businesses a significant amount of money.

Helcim offers its own proprietary processing hardware: the Helcim Card Reader and the Helcim Smart Terminal. Both machines offer support for chip + PIN payment acceptance and are very competitively priced in comparison to similar devices from other providers. Helcim is available in the United States and Canada but does not accept high-risk merchants.

Host Merchant Services

Host Merchant Services gets high marks as an all-around choice for merchant services, including credit and debit card acceptance. Like our other top recommendations, the company offers interchange-plus pricing exclusively, using clearly-disclosed processing rates for retail, restaurant, and eCommerce businesses. All accounts are billed on a month-to-month basis, with no long-term contracts or early termination fees. Accounts with Host cost $14.99/month, with other fees (many for optional services) clearly disclosed on the company’s website.

Host offers a wide variety of credit card readers, terminals, and POS systems on its website. Most devices support chip + PIN payment acceptance. However, some older models may require the purchase of a separate, customer-facing PIN pad. All devices are offered for direct sale, as the company does not use terminal leases. Host accepts all low-risk merchants, as well as high-risk merchants in certain industries. Be aware that pricing and contract terms for high-risk businesses will be very different from what is advertised on the company’s website.

National Processing

National Processing is a great merchant services provider for small businesses, offering fair prices and flexible contract terms. The company offers merchants a choice between interchange-plus and membership pricing, either of which will save you a considerable amount of money on debit card transactions. While the membership pricing option offers the lowest processing rates, it will also cost you either $59/month (Subscription Plan) or $199/month (Subscription-Plus Plan), as opposed to just $9.95/month for interchange-plus pricing. As such, this option is only cost-effective for large businesses with a high monthly processing volume.

National Processing offers numerous credit card readers and terminals on its website, including newer “smart” terminals with color touchscreens and customer-facing displays. Most of these devices support chip + PIN payment acceptance, but some models will require a separate PIN pad. For businesses that meet certain requirements, National Processing will offer one “free” card reader or terminal with your account. While this can be a good deal in some cases, we’d caution you that accepting free hardware will require you to commit to a three-year contract with an early termination fee.

Debit Interchange Rates VS Markup

By now, you understand that your debit card transactions will get routed through either a PIN debit network or a credit card network, either one of which will charge you fees for the use of the card. However, these fees don’t represent your entire cost. Your merchant services provider takes a cut, too. In most cases, it’s a relatively small portion of your overall cost.

How your processor determines its markup will depend on your pricing model.

As for the “interchange” part of the fee, the most important factors in determining your debit card fees are:

1. Card Networks: Over a dozen debit card networks operate in the United States, and they each have a different fee schedule. STAR, Interlink, and Maestro are three of the more familiar networks, but there are others, as well. In Canada, Interac is the most well-known debit card network.
2. Issuing Bank Size: With the passage of the Durbin Amendment, banks and other financial organizations above a certain size are subject to rigid caps on the fees they can assess for debit transactions.
3. Signature VS PIN Debit Transactions: Debit card transactions can be authenticated using either the customer’s Personal Identification Number (PIN) or signature. PIN authentication is inherently more secure and reliable, so these transactions will be subject to much lower processing fees than if the customer merely signs their receipt.
4. Card-Present VS Card-Not-Present Transactions: Any transaction where both the customer and the debit card are present at the point of sale is going to be fundamentally more secure than online or keyed-in payments taken over the telephone. Consequently, processing rates for these transactions will be lower than they are for remote payments.

PIN Debit Transactions

These transactions are authenticated by the customer physically entering their PIN into the terminal. (Note that PIN debit is not available for eCommerce transactions.) Payment data is routed through one of the various PIN debit networks (e.g., Interlink, Maestro, etc.). You will be charged the applicable debit network fees for these types of transactions, not the interchange fees that credit card associations such as Mastercard and Visa charge.

Debit network fees typically feature lower percentage fees than their interchange counterparts but higher fixed per-transaction fees. Because of this, they generally are less expensive to process for large ticket sizes. However, if you process a lot of very small-ticket transactions, they can be more expensive than credit cards.

Signature Debit Transactions

These transactions bypass the PIN debit networks and are instead routed through the applicable credit card networks for Visa, Mastercard, Discover, or American Express. This is commonly referred to as “running a debit card as credit.” The standard credit card interchange fees will apply, in addition to any markup charged by your processor. Interchange fees usually impose a higher percentage fee but lower per-transaction fees. Unlike PIN debit transactions, signature debit transactions will be less expensive to process for smaller ticket sizes.

Card-Not-Present Debit Transactions

What about online or manually keyed-in debit card transactions where the customer can’t enter their PIN or provide a signature? These transactions can only be authenticated using the card’s Credit Card Security Code (also known as a CVV, CVV2, etc.), so they’ll be processed through the credit card networks just like signature debit transactions.

Regulated Debit Network Fees

If the issuing bank is large enough to fall under the Durbin Amendment, debit transaction fees will almost always be fixed at the maximum amount allowed by law:

• The rate will be 0.05%
• The transaction feewill be $0.21 or $0.22 if a fraud adjustment applies

Large banks have little or no incentive to offer rates any lower than this, as it’s already much lower than those charged by smaller banks exempt from the Durbin Amendment rate cap.

Exempt Debit Network Fees

Outside of the Durbin umbrella, things get really complicated. Not only is there no cap on the rate and transaction fee, but those numbers will vary between networks and even within any given network.There are no universal rules that apply here, but generally speaking, prepaid debit cards will incur higher rates, and transactions under $15 will have higher rates.

Here are some average costs for each network based on data from the Federal Reserve in 2022:

Signature Debit

Signature debit uses a customer’s signature (or CVV for online purchases) to authenticate their identity instead of a PIN. This method of running the card “as a credit card” bypasses the PIN debit network, instead routing the transaction onto the credit card payment networks. Regardless of which processing rate plan your provider has you on, these transactions will incur the same interchange fees that apply to regular credit card transactions.

As we’ve mentioned above, credit card interchange fees tend to have much higher percentage-based elements than PIN debit fees, but often have lower fixed authorization fees. While interchange fees are complex and highly variable, you can expect signature debit transaction costs to fall close to the following averages:

• Include A PIN Pad With Your Countertop Terminal: Most modern credit card terminals now include a built-in, customer-facing PIN pad for debit card transactions. However, some older countertop models require a separate device that has to be connected to the primary terminal. Without a PIN pad, all of your debit card transactions will be run as credit, resulting in much higher processing rates.
• Choose A PIN Debit Network With Favorable Rates For Your Type Of Business: Most new EMV terminals are automatically configured to allow you to select the network you want to use. Since rates vary between networks and types of transactions, you’ll want to choose a network that processes your types of transactions at a lower rate. Remember to also minimize switch fees and annual fees when possible. Keep in mind that these fees can change at pretty much any time, so you’ll probably have to keep an eye on them.
• Choose A Payment Processor That Offers Interchange-Plus Or Membership Pricing: With interchange-plus pricing, you’ll pay a fixed markup in addition to interchange fees or PIN debit fees on each transaction. This allows you to enjoy the savings offered by lower PIN debit processing rates. Likewise, membership pricing takes this pricing transparency one step further, eliminating the percentage-based markup altogether in exchange for a fixed monthly subscription fee.
• Consider Adding A Convenience Fee To Debit Card Purchases: It’s generally allowable to offset some of the high authorization fees on small-ticket debit card sales by adding a fixed convenience fee to each transaction. For example, this practice is quite common at gas stations. However, you’ll want to weigh the pros and cons (lower processing costs versus potentially fewer sales) carefully before implementing this type of fee.

• Choose A Provider That Offers You A Tiered Pricing Plan: With tiered pricing, the multitude of processing rates are consolidated into three tiers: qualified, mid-qualified, and non-qualified. These tiers ignore the differences between PIN debit and credit card interchange fees, meaning that all of your debit card transactions will cost as much as credit cards, even if you use a PIN pad. (Note that some providers offer separate tiers for PIN debit transactions, often using the lower rates in a misleading way to suggest that all of your transactions will be that inexpensive.)
• Choose A Provider With Flat-Rate Pricing If You Have A High Volume Of Debit Card Sales: Much like tiered pricing, flat-rate pricing offers you a single rate for all transactions (although these plans usually distinguish between card-present and card-not-present transactions). Again, you’ll pay the same rate for debit and credit cards, even though the PIN debit transactions cost much less to process. Popular payment service providers (PSPs) like Square and PayPal offer flat-rate pricing but don’t charge monthly or annual fees. This can be a fair tradeoff if you’re just getting started or have a low monthly processing volume. However, at higher volumes (generally above about $5,000/month), you’ll want to switch to an interchange-plus or membership pricing plan to save money on your PIN debit transactions.
• Set A Minimum Purchase Amount For Debit Cards: With the high per-transaction authorization fees for some debit card transactions, it may be tempting to require or set a minimum purchase amount for card transactions if a customer pays with a debit card. Unfortunately, it’s both illegal under federal law and prohibited by the major card associations. You can, however, set a minimum purchase amount (up to $10.00) that only applies to credit cards.

Do debit cards have processing fees?

Debit cards have processing fees in the same way that credit cards do. When a customer pays with a debit card, the merchant must pay a fee to the bank that issued the card (known as either a PIN debit fee or an interchange fee).

Is it legal to charge a fee for using a debit card?

Visa and Mastercard rules on surcharging prohibit merchants from charging fees on payments made with debit cards or prepaid debit cards. That applies even if the transaction is “run as credit” — that is, no PIN is entered. Our “debit vs credit” transactions guide explains these differences in further detail.

Do merchants pay a fee for debit transactions?

Yes. Merchants must pay interchange fees (or PIN debit fees, depending on how the transaction is processed) on debit transactions and whatever markup the processor charges. In addition, a payment processor will typically pass through annual network fees and other costs.

How much do retailers pay for debit card transactions?

Interchange fees for debit card transactions depend on the bank that issued the card. Large banks are subject to the Durbin Amendment, which caps the interchange rate at $0.21 + 0.05% per transaction. Small banks are not subject to this rate cap.

Do debit cards cost merchants less processing fees than credit cards?

Interchange rates for debit cards are generally lower than rates for credit cards. Debit cards issued by large banks have a maximum interchange rate of $0.21 + 0.05%, whereas credit card interchange rates range from 1.50% + $0.12 to more than 3.5% per transaction.

Why can't you surcharge a debit card?

Merchants cannot apply a surcharge to any debit card transaction, as it is prohibited by both the Durbin Amendment and the major credit card associations. This prohibition applies even if the card was “run as credit” (i.e., authenticated with a signature instead of a PIN).

Frank has been writing about payment processing and business services since 2015. He is a retired Air Force officer and a former practicing attorney. He has a Bachelor of Science degree in Psychology from The Pennsylvania State University and a Juris Doctorate degree from the Ventura College of Law, and currently resides in Paso Robles, California.

View Frank Kehl's professional experience on LinkedIn.

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