Difference between Debit and Check Cards

If you are a business owner, raise your hand if you have been told that accepting ‘Debit Cards’ is less expensive for your business…   What would you say if I told you that the passing of the Frank-Dodd Act, made that statement obsolete?  See, the Frank-Dodd Act was the big financial deal that went down in 2010 regulating big banks for various reasons because of the housing crisis that came to a head in 2008.  Richard Durbin, who was an Illinois Senator, attached the Durbin Amendment at the last minute which essentially changed the cost to the merchant for Debit/Check Card transactions.


Before we get into it, I need you to understand something: The difference between Debit Cards and Check Cards.

Debit Cards – cards that are attached to your checking account that DO NOT have a Visa or MasterCard logo. The only way you can use them is if you enter your pin for the transaction. Think of it like getting money out of an ATM.

Check Cards – Cards that are attached to your checking account that DO have a Visa or MasterCard logo. You can use them as a credit card by just signing your name, no pin number required.

THE HISTORY – Pre Durbin

Before the Durbin Amendment, every debit network charged the business owner a different percentage rate and transaction fee for the ability to accept Pin-Based Debit. (when the customer types in their pin number on a pin pad)  In addition, the business owners’ processing company also charged a percentage and transaction fee on top of what the networks charged.  If you’re wondering, the networks that I’m referring to are Interlink, Cirrus, Star, etc… You see the logos on ATM machines all over the place.  Each bank that issues debit cards to their customers has a contract with one of the networks.  For the merchant or business owner, pre-Dubin, their processing companies typically charged a hefty transaction charge but limited the percentage charged to the merchant above what the networks charged.  If the merchant ran that Check Card as a Credit Transaction, their processor charged them a different, and often, much, much higher percentage rate.  For example with pin-based debit, a business owner might pay all fees the network charged and in addition they would pay their processor a flat fee of about $.40 per transaction. Whereas if that same card was ran as a Check Card as a Credit Transaction, the business owner might pay 1.5% or more PLUS a transaction fee.

That might not seem like much but think about it like this.  After the 2008 crisis, more and more people started using debit cards and were less likely to use credit.  In fact, some industry insiders claimed that the number of card transactions were close to 75% debit usage and only 25% credit usage for the 3 or 4 years following.  That’s a huge spike in Debit usage.  This comparison is directly referring to the amount of Credit Cards being used versus Debit Cards being used.

Why am I telling you this?  Richard Durbin’s introduction of this bill was meant to directly combat the rise in Debit usage that was ultimately being paid by the business owner.  It was believed the processing companies, along with the banks, were pocketing big sums of money and the merchants were the ones paying them.

Let’s talk about just the numbers aspect of it.  Back in the day, the break even point was about a $25 transaction. (Just trust me)  A customer walks in your store and buys $25 worth of stuff, presents you with a Debit/Check Card, do you run the transaction as Debit or Credit?  Which is cheaper for me the business owner?  At a $25 transaction amount, the cost to the business was about the same, give or take a penny or two.  As the transaction amount increased ($50, $75, etc…) the overall cost to the merchant would end up being lower for a debit transaction compared to a credit transaction.  This was also a contributing factor as to why more debit was being used.  More merchants requested it from their customers.  For those visual learners, credit transactions are based off of a percentage charged to the merchant based on the card type used.  IE:

With the average credit card rate of 2.25% charge on a $50 transaction, it would equate to roughly $1.12 cost to the merchant and it would be $2.25 for a $100 transaction with the same credit card.

Therefore, as the transaction cost went up, so did the cost to the merchant when accepting the average credit card. But the debit charges didn’t increase with the increase of the transaction.  The networks (Interlink, Cirrus, Star, etc)  had a cap on the charge and the processors charged a flat transaction fee.  If the network cap cost the merchant lets say $.30 and the transaction cost from the processor was $.40, the most a merchant could pay for a debit transaction would be $.70 regardless of how much the actual transaction was for.  Compare that to the above example of a $2.25 charge for a credit transaction. Big savings for the merchant.


With the Durbin Amendment, it simplified cost and the pricing structure.  Long gone are the days of flat $.40 transaction fees being charged by the processors for debit transactions.  Understand that the Durbin Amendment applies ONLY to Debit/Check Card transaction and has no effect on actual Credit Card transactions.  The cost for Debit or Check Card transactions are now:

.0005 and $.21 a transaction for Debit or Check Cards run as credit transactions. (Remember that when I refer to Debit transactions, customers type in a Pin Number on a Pin Pad.)

(By the way, these costs are not a big secret. They are published online on the Visa and MasterCard websites and plastered all over the web for your viewing pleasure. You just have to search for Interchange Rates. It helps to know what looking at as well.)

Back to the pricing:  Your processor has every right to charge you something higher or on top of what is listed on the Interchange chart, but this is the base line cost to the merchant for Debit/Check Card transactions.  Do you remember what I said was the difference between the two?

Debit Cards – cards that are attached to your checking account that DO NOT have a Visa or MasterCard logo. The only way you can use them is if you enter your pin for the transaction. Remember ATM.

Check Cards – Cards that are attached to your checking account that DO have a Visa or MasterCard logo. You can use them as a credit card by just signing your name, no pin number required.

Now a days, finding a Debit Card without a Visa or MasterCard logo is nearly impossible. So the real difference when I say “Debit or Check Cards” is only referring to HOW the transaction is processed. Debit is putting in your pin and Check Card is when it’s ran as a credit transaction.

If you are a business owner and your processor is still charging you a flat charge of roughly $.40, you are being taken advantage of.  In my opinion, the days of taking Pin-Based Debit are gone and here is why.

If a customer walks into your store and wants to pay with a Check Card (debit card with a Visa/MC logo), do you, the merchant, want them to type in their pin number or do you just want them to swipe it or use the chip?

Answer: It doesn’t matter.  The cost to you is exactly the same.  The cost I mentioned above of .0005 and $.21 is associated with the type of card and NOT how you process the transaction.  So the cost will be exactly the same regardless of how you run the transaction.

There is a downside now to having a Pin-Pad and taking debit. Currently there are 7 or 8 debit networks and you as the business owner would need to be part of all of them to accept debit. (Your processor would handle that for you)  The perk of being a part of the networks is that you now get to pay the network’s annual fees every year to every network to be part of them.  The best part is, you get absolutely nothing for it!  If that doesn’t make you want to smile from ear to ear, I don’t know what will.

What I mean is, there is no financial benefit to you as a business owner to have a Pin-Pad and accept Pin-Based Debit. In fact, it actually costs you money every year.  Why would you waste money on something that has no benefit to you? I ask myself that every month when I pay my DirecTV bill.

Don’t get me wrong, there are a couple of benefits to having a Pin Pad.

  • If your terminal does not have the ability to accept EMV, you can buy a Pin Pad that does accept EMV that connects to your terminal for less than you can get an EMV compatible terminal for.
  • If your terminal hides behind your counter, you can use an EMV compatible Pin Pad to make it easier for your customer to pay.

I don’t think that these 2 benefits are worth the annual fees that you have to pay to the debit networks.  But, it’s your business, run it how you want.

For me, accepting Credit or Debit is an essential part of running a business.  I feel as the business owner, you should know as much as you can about why you get charged and things you can do to cut costs.  Understanding how different types of payment methods affect your business is essential to understanding what you’re paying for.  My goal is to educate my customers so they understand what they ARE paying for and that they don’t pay for things they don’t need.

There is one aspect of accepting Pin-Based debit that I need to address. There is 1 good reason a business might want accept debit.  Chargebacks.  If your customers pay with Pin-Based Debit, it is extremely difficult for them to get their money back via a Chargeback because they essentially paid you with cash.  For some business owners, this may be a good enough reason to take Pin-Based debit alone.

If you have questions or concerns about how you accept Pin-Based Debit or Check Cards, feel free to reach out to me and I can explain it to you.  I enjoy helping business owners understand all of this non-sense.  I’m hoping to earn your business by educating you about what this all means. The more you know, the better it is for me.

Until next week,

I’m Ed Craft, your credit card guy!

15 years in the business and counting.


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