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Signature & PIN Debit Processing

Merchant Alert: Debit Interchange Regulation

Vantage can set up your business accept PIN debit cards for payment. We are registered with all regional and national debit networks, so no matter where you or your customers are located, we can handle your debit processing needs.

What are debit cards, and how do they differ from check cards?
Both directly access the cardholders bank account to secure and hold the authorization amount against available funds. The difference between them is that check cards have the ability to be run through the credit card networks or may access the debit networks at ATMs for withdrawing cash. A pure debit card (without the Visa or MasterCard logo) may only be used through the debit networks. This means a debit card will work fine at Automated Teller Machines for cash, but in order to be accepted at a merchant establishment, the merchant must have debit service agreements in place as well as encrypted PIN pad equipment hooked up to their credit card system. It is the secret PIN that cardholders must key into the system that proves their authorization of the sale.

Triple Data Encryption Standards
Triple DES or 3DES is the sanctioned algorithm standard used by all debit-capable transaction terminals for PIN encryption in the U.S. and is the latest advancement in security against fraud.  Visa has mandated that all devices be replaced and updated to comply with 3DES by July 1, 2010.  This mandate will involve a major overhaul of equipment swaps and replacements for all merchants - not just Vantage clients - accepting PIN-based transactions.  

If you currently process pin-based (or online) debit transactions, you may be operating a Point of Sale device that will need a software upgrade or device replacement in order to continue processing such transactions. Visa and MasterCard have set a mandate effective July 1, 2010 to ensure that all installed Point of Sale terminal models have been approved and are using the most up to date encryption standards for processing debit transactions. In order to comply with the mandate, Point of Sale devices must be on the current approved list found at http://www.pcisecuritystandards.org/pin.

Our merchant services department has initiated a program to ensure all of our merchants will be able to remain compliant by facilitating a swap, purchase, or software upgrade of any non-compliant Point of Sale device(s) in use.

New Vantage PIN deployments currently meet this new standard.   If you have any questions about PIN Debit processing or 3DES encryption standards, please contact us for more information.

Debit Interchange Pricing
Credit and debit networks differ in their pricing to merchants. PIN debit historically has a lower percentage rate and a higher transaction fee and therefore works well for merchants with a larger sale transaction amount. However this has changed significantly.

Increasingly PIN networks are dropping the max calculation from their fees for merchants. PIN debit had been a low cost alternative to signature debit (check cards) specifically on high ticket items. The primary reason was that the PIN networks capped the costs (ex. $0.65 max). PIN network "Interchange" has continued to increase to compete with signature debit (remember Interchange is paid to the issuers and issuers prefer to issue and promote cards that pay more when used). PIN networks continue to publish more complex Interchange charts with more categories based on type of industry.

Effective April 2010, Visa has announced it will adjust its U.S. Debit Interchange reimbursement fees for most merchants, making the underlying Interchange costs for accepting a Visa signature debit (check card) the same as accepting an Interlink PIN debit transaction.  As Visa's debit rates converge, and other prominent PIN networks raise rates and fees and eliminate maximum charges, we recommend that you analyze your debit card acceptance carefully.

Effective October 2011, both PIN and Signature Debit Interchange became regulated by the Fed under the Durbin Amendment of the Dodd Frank Financial Reform bill. The Fed set price caps on all debit at 0.05% + $0.22 (with Fraud Adjustment which is most common among debit issuers).

If there are no price incentives for merchants to accept PIN does it make sense to continue to invest in PIN pads, encryption upgrades, maintenance, etc.?  Should merchants continue to ask their customers… “credit” or “debit” at the points of sale?  

Carefully consider the numbers used to calculate estimated savings to make a case for converting check cards to debit transactions by adding a PIN pad. For example, many people who use check cards are incentivized to do so because their financial institution provides a rewards program. Nearly two thirds of the top issuers no have one or more signature debit rewards programs.

This map has not been updated to remain accurate but it does represent a historical image of the different regional and national PIN debit networks.

For more information, contact a Vantage professional for a comprehensive analysis of your merchant statement data.