PIN/Debit Card Network Vs. Credit Card Interchange Network
Which network is best for small businesses?
There are lots of stories and myths out there as to the most cost efficient way for business owners to run credit and debit cards. In recent days, the notion of cost savings on merchant transactions has become even more important as small business owners are now facing the challenges of a coin shortage due to the COVID 19 pandemic. In many states, the shortage is limiting the number of cash transactions a business can execute. This unique set of circumstances is poised to potentially drive up operating costs for business owners.
Law 4 Small Business reached out to Ginger Hollowell, author of “Secrets of Credit Card Processing Revealed” and asked her to explain what is actually the best way for business owners to run/process credit and debit cards.
L4SB: Is there really a substantial savings for small business owners to run cards with PIN numbers rather than using the traditional credit card exchange network?
“It used to be cheaper to take pin debit cards via the debit networks instead of through the credit card interchange networks. (That means that you would take the card and the customer would enter his pin number.) But since the Dodd Frank Act, https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp it is cheaper to take debit cards just like a regular credit card, without the pin entry.”
“The Dodd Frank Act regulated the large bank institutions so that they couldn’t charge more than .05% plus $.22 for a debit card. Congress thought that the large banks were gouging people who didn’t have great credit ratings and wanted to use a debit card instead of writing a check merely because it was more convenient. Small local banks and credit unions struggle to compete with the big banks, so they lobbied to be able to still charge merchants a higher rate for debit cards run through the Visa/MasterCard network and they won that right.”
L4SB: So, in light of the changes that came via Dodd Frank, should small business owners even bother with PIN entries?
“There are good reasons why a merchant would still want to utilize the debit networks and accept pin entries. Those types of merchants who have more than usual numbers of chargebacks would want to encourage their customers to enter their pin with their debit card. Transactions that go through the debit network are as good as cash. They cannot be charged back. So, liquor stores, for example, many times want to keep using the pin debit network.”
“If you are taking a lot of pin debit cards, you might take a look at the fees. Likely you can save .75% of those fees. The debit networks charge, on average, 1% plus a transaction fee of $.15 compared to .05% and $.22 for a regulated debit card. Really, every business is unique that is why I would encourage business owners with questions to Contact us here at the Electric Money Company https://electronicmoneycompany.com/ if they have questions or want to explore how to go about lowering rates on their merchant services.”