Is Credit Card Processing the Same as Debit Card Processing?
They look the same. They’re used the same way. And for you, the merchant, the end result is pretty much the same. But if you want to accept both, you need to understand that credit cards and debit cards are two markedly different animals.
Most consumers understand the biggest difference: debit cards pull directly from the cardholder’s bank account, while credit cards draw from an established line of credit. If it still ends up in your business account, though, does it matter where the money comes from?
Actually… it might.
In today’s post, we’ll explore how credit and debit card processing differ, why you should care, and how to minimize the impact on your bottom line.
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Comparing Debit vs. Credit Cards
The difference between buying with a debit card, versus a credit card is fairly simple and easy to understand. That’s less true when it comes to credit and debit card processing, though. The disparities are more obvious, more complicated, and usually less understood.
For starters, credit and debit card processing fees are usually distinct. Debit card interchange rates are often – but not always – lower, since debit card purchases carry lower risks for processors. Plus, there are stricter government mandates in certain areas, like how much a bank can charge for debit card transactions.
If you’re not confused enough yet, here’s another tidbit: credit cards can only be processed as credit cards, but debit cards can be processed as credit or debit cards. This involves two separate networks. And, the path a card transaction takes can also alter the merchant acceptance fees you have to pay.
| Transaction Type | Credit Card | Debit Card (Signature) | Debit Card (PIN) |
| Transaction Funds | Charged against cardholder’s credit line | Deducted from cardholders checking account | Deducted from cardholders checking account |
| Processing Method | Through credit card network | Through credit card network | Through debit card network |
| Fees | Higher (1.5% to 2.75%) | Higher (1.5% to 2.75%) | As low as 0.05% |
| Minimum Charge | Allowed | Allowed | Not allowed |
| Surcharge | Allowed* | Allowed* | Not allowed |
| Security | Riskier | Riskier | Less risky due to PIN validation |
*Rules may vary by state
Processing Credit Cards: How it Works
Credit card payments are a kind of loan, with the issuing bank agreeing to make the actual payment and the cardholder agreeing to repay that amount in the future. When a buyer makes a credit card purchase from you, the funds aren’t immediately available in your account. There’s an entire chain the transaction data has to run through:
- Your payment processor collects all the necessary info and forwards it to the acquiring bank.
- The acquirer checks the customer’s available credit through the issuing bank.
- The issuer verifies the available credit and authorizes the payment.
- The transaction amount is placed on hold, meaning the customer can’t use it.
- The acquirer forwards the authorization back to the payment processor.
- Funds are moved from the cardholder’s bank to yours, usually in 3 days or less.
That’s the basic idea, at least. The entire procedure happens in near-real time, while the customer waits by your register or on your checkout page.
Processing Debit Cards as Credit
With the signature (“credit”) method, a debit transaction functions similarly to a credit card transaction, except funds are directly withdrawn from the customer’s checking account rather than against a line of credit, and the transfer typically clears faster.
As I mentioned, there are two different routes you can take when processing a debit card: authorization by personal identification number (PIN), or authorization with a signature.
The signature method of processing is what happens when your buyer uses a debit card, but does not use their PIN to verify their identity. The buyer either selects the “credit” option on the card reader, or pays online with a debit card.
With this route, the transaction authorization process works almost identically to that of a credit card. The data makes the same trip to the same places. The only real difference is that in the end, the sales amount isn’t deducted against the cardholder’s line of credit. Funds are directly transferred out of the customer’s checking account.
As with a credit card transaction, the funds will take up to three days to get to your account. However, because we’re talking about straight cash-to-cash transfer, it commonly takes less time than a regular credit card transaction.
Oddly enough, the signature method of processing a debit card often doesn’t require an actual signature to complete the transaction.
Processing Debit Cards as Debit
The PIN method, often called the "true debit" method, relies on an encrypted PIN to authorize transactions and operates on a separate network from credit card payments, offering enhanced security. True debit transactions are typically processed through the ACH network, ensuring faster and more cost-effective transfers compared to the signature authorization method.
The PIN route — sometimes called the “true debit” method — is built around an encrypted PIN known only to the bank and the cardholder. Without the PIN, the transaction will get declined.
In a true debit transaction, confidential sales data is transferred on a completely separate network from the one used for credit card payments. The majority of PIN transactions happen at brick-and-mortar locations using a card reader.
“True” debit transactions are run through the ACH, the same network used for other cash transfers such as direct deposits.
The primary distinctions between the PIN and the authorization methods are speed and cost: true debit transactions will likely cost you less.
Credit and Debit Card Processing: Fee Schedules
Credit and debit card processing fees are unavoidable, with costs varying depending on the type of card and the network used. Debit card transactions processed through debit networks generally have lower interchange rates due to reduced risk, but if processed as credit, they incur the same fees as credit card transactions.
If there’s one constant in the realm of credit and debit card processing, it’s that everyone involved will take their cut before you ever see your money. Regardless of what type of card we’re talking about, you’re going to be charged each time you accept a debit or credit card payment.
How much will you pay? Well, now that depends on the type of card used.
Your per-transaction interchange fee will vary based on things like the issuer or card type. For the purpose of this discussion, you should note that debit card purchases are considered less risky than credit card sales, and therefore typically have a lower interchange rate.
If your payment processor uses a flat-rate pricing model, you’ll be charged the same credit and debit card processing fee, regardless of card type.
Rates for cards processed through the debit card network will usually qualify for a lower rate. That said, if a debit card is processed through a credit card network, it’s treated the same as a credit card, and will cost you the same rate. Be sure to check with your processors about potential rate differences in either case.
Because of the processing fee, some merchants require a minimum purchase amount before a credit card can be used. It can help offset your costs. You must post the surcharge clearly at checkout, though, and it can only cover outside costs; you can’t do it for profit.
Keep in mind that customers typically don’t like additional costs, the card networks frown on it, and the legality of minimum amounts and surcharges vary from state to state.
Credit and Debit Card Processing Fraud Liability
Cardholders have the right to dispute transactions, but protections vary between credit and debit cards. While credit card fraud liability is capped at $50 under federal mandates, debit cardholders face stricter timelines and may lose reimbursement rights entirely if fraud is reported after 60 days.
Any type of payment card purchase can be disputed by the cardholder. In cases of fraud or merchant abuse, the bank will likely file a chargeback. That’s a guaranteed right for cardholders, but the rules are different between card types.
While both credit and debit cards are backed by consumer protections, federal mandates make the coverage on credit card purchases far stronger. According to regulations, credit card users in the US are only responsible for up to $50 of unauthorized transactions; the bank covers any remainder.
That’s not the case with debit card fraud. The cardholder’s liability in those cases is limited to $50 only if a missing or stolen card is reported within two days of the fraud’s discovery. If the customer reports fraud more than two days after the incident, they may be liable for up to $500 in damages.
If the cardholder waits more than 60 days to report the loss, they may lose any rights to reimbursement.
Credit and Debit Card Processing: Either Way, Disputes Remain the Same.
Debit card disputes are usually faster and easier to deal with. But, the truth is that any kind of chargeback is going to cost you.
Even if the claim is bogus, and you manage to have the dispute reversed, you’ll still be stuck paying chargeback fees and other costs.
Whether you're talking about debit cards or credit cards, the way to fight chargebacks is by preventing them with a comprehensive, end-to-end dispute management plan.
Chargebacks911® has a wealth of experience-based knowledge and expertise in providing cost-effective prevention and risk mitigation strategies. We’ve helped others, and we can help you. Contact us today to learn more.
FAQs
What is the difference between debit and credit card processing?
Credit card processing involves a greater number of steps, is riskier for banks, and can take more time to complete. It’s almost always more expensive, too, comparatively. Debit card processing is normally faster, meaning that the merchant will get paid faster.
Are debit and credit card processing fees the same?
Because debit card processing involves direct cash transfers, it’s considered less risky — and therefore normally comes with a smaller interchange fee.
Are debit cards processed like credit cards?
It depends. Debit cards can be processed using the exact same procedure and network, but they can also be processed more directly through a specialized network, which is typically faster and less expensive.
Can businesses charge a fee for paying with a debit card?
Merchants are not allowed to add a surcharge to customers for paying with a debit card. Requiring a minimum amount for a debit card purchase is also a no-no.
Are debit cards cheaper to process?
Debit cards processed with a PIN code typically come with lower fees. If the debit card is processed like a credit card (no PIN), the fees will normally be the same as a credit card transaction.
What is the difference between a debit transaction and a credit transaction?
With credit card purchases, the cardholder is essentially borrowing the transaction price from a pre-established line of credit provided by their bank. With debit cards, the transaction price is pulled directly from the cardholder’s checking account.
