Visa and MasterCard Make Their Money on PIN-based Debit Transactions

In previous posts I have talked about Visa and MasterCard turning to Debit and prepaid cards to re-coop money lost on defaulted credit cards. PIN-based debit transactions type of cards used to be the cheapest form of electronic payment a merchant could accept – that seems to be changing these days.

It is estimated that PIN-based debit transactions Interchange costs have gone up nearly 85% in the last year alone. The rise could be attributed to a large consolidation between debit networks. Whenever there is consolidation, there is typically less competition and the result is higher PIN-based debit costs to processors and higher interim costs to merchants. Interlink’s current fee is nearly $0.76 per transaction and Pulse’s is over $0.64. Many merchants have become accustomed to paying flat fees for PIN-based debit transactions but in the coming years that will be a thing of the past.

Online merchants can take advantage of PINless debit solutions by having the option of using networks such as Star, NYCE, and Pulse and not having to pay traditional Interchange fees. This is beneficial to e-commerce merchants because payment is immediate, unlike e-check or ACH which can take a few days. The funds are also verified and clients do not have to give out checking account information. These features are currently limited to certain business types, such as utilities (water, gas and waste management), Education, government payments (taxes, fines, licenses), insurance (auto, life, and health), health club memberships, and internet service providers.

It is still beneficial to add a PIN pad to your terminal if you are a large ticket business. This will ensure you are paying the lowest rate possible. Some processors will offer a low PIN-based debit transaction fee. Often the merchant will still have to pay debit network pass-through fees.  If the PIN-based debit fee you are quoted sounds too good to be true, it probably is.