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If you’re a small-business owner who uses a point-of-sale, or POS, system, then you will likely notice there are various fees associated with running your POS system and accepting card payments. These fee structures can be confusing, especially because they vary by industry, transaction type, issuing bank and payment processor.
Overall, however, you will pay a fee to the debit network (for PIN transactions) or card network (for signature transactions) plus a fee to the payment processor. Here are the elements that affect the total debit card processing fee.
Debit card transaction type
There are typically two types of debit card transactions you will be processing: PIN and signature.
PIN debit applies when a customer completes the transaction by entering their personal identification number, or PIN, after swiping or inserting their debit card. Generally, the merchant will not require a physical signature for PIN debit transactions.
PIN debit transactions are often called “online debit transactions” because the payment information is processed through the debit network instead of the credit card network (Mastercard or Visa).
This transaction applies when a debit card is swiped and the merchant or customer chooses to process the card as a credit transaction. Instead of entering a PIN, the customer will typically sign the sales receipt.
The Visa or Mastercard network handles payment routing for these types of transactions, rather than the debit network, so they’re also known as “offline debit transactions.”
Here, it’s important to note that even though the transaction is processed as credit, the funds are not borrowed, as they typically would be with a credit card; they’re still drawn from the customer’s checking account.
Depending on which debit card transaction type your customer chooses, the payment will be routed to the card-issuing bank through either a debit network or a card network.
If your customer uses their PIN when paying with their debit card, payment routing will be handled by a debit network like Interlink, Nyce or Star. The debit network charges a set of fees that vary based on your business industry and the size of the transaction. Some debit networks place a cap on the maximum fee a business will pay, but other networks have no such cap.
Signature transactions, however, are routed through a card network like Visa or Mastercard. Card networks charge interchange fees, which usually involve a percentage of the total sale plus a transaction fee.
Regulated versus unregulated debit cards
Your debit card processing fees will also vary depending on whether the bank that issued the customer’s card holds $10 billion or more in assets or has less than $10 billion in assets.
If the bank has $10 billion or more in assets, the debit transaction fees will be capped at 0.05% plus 21 cents, based on the 2011 Durbin Amendment. These are known as regulated debit transactions. Banks that hold less than $10 billion in assets are not subject to this regulation and, therefore, these debit transactions (called unregulated debits) carry variable interchange fees.
It’s also important to note that interchange rates often change over time — sometimes even twice per year. For example, Visa and MasterCard update their interchange fees semiannually. Therefore, it’s prudent to regularly review interchange rates across different companies to observe any fluctuations in your debit card processing fees and bottom line.
Payment processing fees
In addition to interchange or debit network fees, you may incur debit card merchant fees charged by your payment processor. Payment processing companies don’t take a cut of the interchange fees — those go only to the issuing bank and the card network — but instead charge a separate fee to process payments.
Payment processing rates vary by processor and follow two pricing models — interchange-plus and flat-rate — to account for interchange fees, assessment fees, and the processor’s service fees.
Here are some of the most commonly used payment processors and the fees they charge.
Dharma Merchant Services
Consult your payment processor
The various interchange and payment processing fees that amount to a total debit card processing fee can make it difficult to determine how much you’re actually earning from a sale. Still, accepting debit (and credit) cards has become a necessity, especially with the increasing use of mobile payment apps, digital wallets and contactless payments.
If you’re ever unsure of how you’re being charged or have specific questions about the fees you face, reach out to your payment processor for more information.
A version of this article originally appeared on Fundera, a subsidiary of NerdWallet.
Dan Marticio contributed to this article.
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