A PIN debit transaction involves a customer who pays with a debit card and enters their PIN number. These transactions are different from credit card transactions in the way that they are billed, routed, and more.
1. Pin debit sales are settled differently than credit transactions because these transactions are single message (authorization and clearing/settlement data are in one message) vs. credit transactions that are dual message (clearing/settlement comes after the authorization.) The easiest way to explain it is like this: when a merchant runs a credit sale, the authorization is merely a placeholder for funds on the cardholder’s account. When they batch out credit transactions, the issuer debits the cardholder’s account with the sale capture, and the acquirer processes a sale to fund the merchant. Whereas with debit, the issuer debits the cardholder’s account at the time of sale (not batch) but the acquiring side does not clear until the merchant batches out. For this reason and a few others that are too detailed to explore in this post, there is always a timing difference for acquirer funding on pin debit transactions.
2. Everyone loves the low cost of debit cards, but you really need to understand the fee structure to be sure they’re as low as you think they are. Debit fees are complicated, mostly because some are capped with the Durbin Amendment. But also because there are several networks, each with their own switch fees and annual fees, and some transactions are subject to assessments. For this reason, flat rate pricing for merchants who have a small average ticket size and process mostly debit is not a good idea. The math never works.
3. Debit cards have stricter dollar and time limits on when they can be disputed by cardholders vs. credit cards. The cardholder liability is capped at $50 if they notify the bank within 2 days of an unauthorized charge. After that, the cap increases to $500, and if it’s after 60 days, the cardholder is liable for 100% of unauthorized charges. This coverage for consumers comes from the Electronic Funds Transfer Act.
4. Debit cards are regulated by a different set of laws than credit. These laws prevent merchants from requiring a minimum charge or adding a surcharge to debit transactions.
5. You will hear debit transactions referred to as “online” and “offline.” Online transactions are deducted from the cardholder’s account immediately. Offline transactions (also referred to as signature debit) are settled like credit transactions only when they clear through settlement. When you bypass entering a pin, an online debit transaction becomes an offline one.