Asking a cardholder “Debit or credit?” is a simplified way of asking if the cardholder wants their debit transaction authorized by their signature or their PIN (personal identification number). These options are processed in very different ways and will have different fees assessed.
On many terminals, the commonly known terms of “debit” and “credit” are being replaced with “US debit” and “Visa/MasterCard Debit” when it comes to EMV or “chip” cards. This new terminology is less clear but it has the same meaning as the older terms. To add to the confusion, some processors and software manufacturers will use different terms altogether to describe the two debit options.
We will use the terms "PIN debit" and "signature debit" through the remainder of this article.
The questions below are synonymous. The term for PIN debit is listed first in each row, the term for signature debit is listed second:
- Debit or Credit?
- PIN debit or signature debit?
- US debit or Visa/MasterCard debit?
PIN debit will require a PIN to be entered and the transaction amount will be deducted from the cardholder’s bank account immediately. Card transactions are routed through different networks that connect businesses and banks together to facilitate the transfer of funds, authorization codes, responses, and other required data. PIN debit transactions will take place on debit networks that are reserved only for those types of transactions.
What are the perks of PIN debit? They allow you to offer cash back to your customers and they are more secure since a PIN is hard to steal or fake when compared to a signature.
Signature debit is when a debit card is used but no PIN is entered. Instead, the transaction will be authorized with a signature, similar to credit cards. Even though the card is connected to a checking account, the funds are not taken immediately: they can take 24-48 hours to be deducted. Signature debit transactions are processed on the national credit card networks instead of the debit networks, this is where they get the nickname “credit.”
EMV (chip) debit cards will not always prompt for or even allow a PIN. These cards are still relatively new in the United States and some issuing banks, terminal hardware manufacturers, and merchant service processors have not yet fully developed support for these cards.
What is the biggest takeaway for you, the merchant? It may be the difference in the cost that you pay for the two types of debit since they do result in very different interchange fees. Both PIN and signature debit transactions are charged a combination of a per-item fee and well as a percentage of the sale amount for interchange. PIN debit will typically have a lower percentage amount and a higher flat fee while signature debit will cost you a higher percentage and a lower per-item fee. This results in lower tickets (credit card transactions) being more economical on signature debit and higher transaction amounts being cheaper on PIN debit.
As a merchant you are not able to dictate to cardholders how their debit card will be run unless they explicitly turn the decision over to you. Furthermore, recent legislation and industry standards have put even more protections in place for cardholders and many terminals are now offering the debit or credit option directly to the cardholder by allowing them to select debit or credit on the PIN pad rather than be asked the question by you.