Pin vs. Non Pin-Based Debit Transactions

by Cheryl Garabedian
SVP of Partner Solutions, Vision Payment Solutions

Non Pin-Based Debit transactions are also called “offline debit.”  It means the merchant was presented a debit card that has a Visa or MasterCard logo on it and the merchant swiped the card just as they would a credit card.  No pin number is entered.  (The money is withdrawn from the customer’s checking account just as it is with pin-based debit, so the card remains linked to the customer’s checking account no matter how the merchant processes the card). 

With offline debit transactions, the merchant pays a LOWER percentage rate but a HIGHER transaction fee.  Keep in mind  the higher transaction fees represent a higher percentage of the sale on small dollar transactions (“tickets”).   (i.e.,  a  30 cent transaction fee on a $4 transaction represents a much larger percentage of the overall sale than it does on a $400 transaction).   Also, be aware that V/MC do offer small ticket rates, but they are not always offered by both associations to all types of merchants.  For example, Visa does not have a convenience store small ticket special rate, whereas MasterCard does.   So, if your business runs primarily smaller tickets (generally $15 or less), please be sure to review the cost associated with those transactions with your processing agent. 

Pin-Based Debit:  This transaction requires a pin pad to process the sale.  The advantage to a merchant using pin-based transactions usually revolves around lower costs.  This is generally how it works:  all sales have a “switch fee” and an “Interchange cost.”  Plus, there is a cost to the acquirer for processing the debit transaction which is also passed on to the merchant.  Many merchant categories are “capped” meaning there is a limit to what the merchant will pay on a pin-based transaction. (Whereas with offline debit, the rate is charged on the sales volume and the sales are not capped, except with special categories such as petroleum).  Generally speaking, the most a merchant will pay for a pin-based transaction is under $1.00. 

Which is better?

Merchants who have high ticket amounts benefit most from using pin-based transactions.  For example, consider a $200.00 transaction: When run  as a pin-based transaction, the merchant will pay under $1.00 in most cases (depending on which debit card is used).  However, if that same $200 transaction is run as an offline debit – even under the best circumstances (Visa, swiped transaction) – the cost to the merchant would run 2.5 to 3.5 times more than the pin-based cost.  Maybe not a huge deal on one or two transactions, but imagine doing a hundred or more of these transactions per month and you can see how the savings could add up quickly. 

Things to Consider Before Installing a Pin-Pad in Your Business: 

1.)  The transaction is a bit more cumbersome and slower requiring the customer to enter a pin.  The transaction is slowed down especially if  customers make a mistake entering or remembering their pin. 

2.)  Small tickets (generally under $15.00) actually cost less to process as offline debit.  The merchant really needs to be savvy and recognize the threshold to processing pin over offline debit.  This is where working with an experienced processing agent really comes in handy.   If you want help analyzing your specific situation, click here.

3.)  Large ticket customers do not like to use their pin.  Case in Point:  I had a BMW dealer who wanted to try a pin pad.  We put it in there and it was never used.  Customers didn’t want the stigma of NOT using a credit card (which implies they have good credit).  So they prefer not to be caught using a pin pad by their peers.   (This is true!)  Also, many know the debit card can just be swiped and don’t want to be bothered using/remembering the pin. 

4.) The actual volume for debit transactions shrinks in a high-ticket arena.  In most cases, the ratio of debit to credit card transactions shrinks as the average transaction amount increases.   

5.)  Cost of the pin pad.  The cost for the pin pad has to be covered by savings.  I usually tell a new merchant to hold off and look at what they actually process before deciding on a pin pad.  They can be added at any time (They simply plug into the port on the back of the terminal).  Usually, after processing without one, they don’t add it later just because of the ease of processing offline debit transactions.  No thought is needed when running cards.

6.) Counter space or having the pin pad accessible or reachable by their customer.  Sometime the layout of the business does not make this possible.

7.)  Will the merchant’s staff be able to determine the thresholds for requesting a pin number and make the best decisions based on cost?  Will they recognize the debit card as a pin based card at all?   Will the consumer be willing to enter a pin?   It always surprises me when I do an analysis for merchants who already process pin transactions.  I usually see more offline debit transactions on the statement than pin!  Why?  Because of all of the above described.   Often, the merchant is not even aware how much offline debits slips by their staff  (instead of pin).     

A final and very important consideration when working with a merchant who already has a pin pad is to make sure it  is the newer CISP or PCI Compliant.  If the old pin pads is not compliant,  the merchant will need to buy the newer one.    If the merchant is using a compliant pin pad, it will still need to be encrypted work on a processor’s specific network.  Instead of taking their existing pin pad away from them and shipping it out for  encryption, VPS will ship the merchant (or the agent doing the install), a pin pad and a call tag for the merchant’s existing compliant pin pad and swap them out.   This way, the merchant is not going without their pin pad for a few days.