While the difference between PIN and signature debit card payments may seem obvious, there are important differences that as a customer or a merchant you should be aware of.
There are variances in fees and how charges are calculated, among other things, so we have put together this guide to help you understand the benefits and drawbacks of each one.
Keep on reading to find out more!
A PIN debit is a method of paying for goods and services using a Personal Identification Number (PIN).
Each card has a unique PIN that should be only known to the cardholder. The debit card is either put into the card reader or swiped through, and the customer enters their PIN onto the keypad.
How Does It Work?
When you pay for something with your debit card using a PIN, the funds are immediately removed from your checking or savings account.
Information about the transaction is sent from the merchant to the customer’s bank via the debit network. The transaction will therefore be subject to a debit network fee.
Debit Network Fees
Payments using a debit card and PIN are routed through one of the debit networks. These payments are also called online debit transactions. For these transactions, a fee will be payable to the debit card processing companies such as NYCE, STAR or Pulse.
The fee will be a percentage of the purchase price, a flat transaction fee, a switch fee, and an annual fee. Some debit networks cap the maximum that a business pays, but not all do, as it is linked to the size of the bank.
Typically, PIN debit card payments attract a lower percentage fee based on the purchase price, but a higher transaction fee. They are therefore better for larger purchases or high ticket items.
Signature debit is when you use your debit card to make a purchase or pay for a service and sign the receipt to complete the transaction.
It is still a debit transaction, but the process is run through a credit card interchange such as Visa or Mastercard. Signature debit payments are sometimes called offline debit transactions.
How Does It Work?
When making a purchase through signature debit, the customer does not enter their PIN, but instead signs the sales receipt. For this reason, the transaction does not go through the debit network, but is routed through a credit card interchange to the bank.
The funds are typically not released for a couple of days in a signature debit transaction, as opposed to immediately with a PIN debit transaction.
In a signature debit transaction, the processor applies a percentage-based as well as a transaction-based markup.
Signature debit transactions are better for smaller ticket items as the percentage rate is normally higher than with a PIN debit, but typically with a lower transaction fee.
As a business owner, you will pay an interchange fee to the customer’s issuing bank for every signature debit payment that you process. The amount of the fee will depend on several factors, such as the size of the customer’s bank and the transaction amount.
Which Method Is Cheaper?
If you have the option to use either PIN or signature-based debit card payment for goods or services, you should know which is going to be the cheaper option for you as a customer.
Similarly, if you are a business owner, you will need to know which method is better for your business. This will depend on whether the card is used at a point of sale or on an e-commerce site.
Choosing PIN Debit Payment
When paying with a PIN debit card, you will pay a lower percentage of the transaction amount but a higher transaction fee. For this reason, it is a better method for large ticket items.
The debit network fee is a charge for processing the payment by networks such as NYCE, STAR, Accel, and Pulse.
Debit network fees vary depending on the merchant category code, the size of the transaction, and the size of the bank, but can change frequently.
Choosing Signature Debit Payment
Using signature payment with a debit card is best for small ticket items as the percentage fee is higher, but there is a lower transaction fee. However, the potential for fraud is higher with signature debit payment.
Paying with signature debit means that you will be charged a percentage fee as well as a transaction fee by the processor. This method of debit card payment is actually run through the credit card networks Visa or Mastercard.
A chargeback is a reversal of a payment made by a debit or credit card when the customer disputes the charge or is unhappy with the product or service.
The reversal is forcibly applied by the issuing bank and is meant to combat abuse or fraud. However, where PIN payment is used, the bank is less likely to approve the chargeback.
While this may be good protection for cardholders, it can be very difficult for merchants and businesses. A recent study showed that businesses lost $20 billion in 2021as a consequence of payment disputes from criminal activity.
Chargeback is meant to focus merchants on providing excellent customer service to minimize disputes.
A chargeback is not the same as a refund. For a refund the customer is obliged to return the product, but in the case of chargebacks the customer goes straight to their issuing bank and asks them to intervene.
For the merchant, if a chargeback is applied, they lose the revenue from the sale, the goods and all associated costs. They are also charged a fee for the chargeback.
We hope this article has helped you understand the difference between PIN and signature debit card payment, as well as all the different charges that apply to each of them.
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.