What to Know About Debit Card Fees

Debit cards play an essential role in business, allowing business owners to pay for their purchases from a dedicated business account. Unlike a credit card account, a debit card transaction doesn’t require the issuing bank to cover the transaction cost temporarily. Instead, debt cards take the money directly from the cardholder’s bank account. There are many pros associated with using a debit card over a credit card, including lower processing fees.

Do you have bad credit and can’t get approved for a credit card? Would you rather only spend the money you have on hand on your small business? Are you looking to avoid the high transaction fees of credit cards? If you answered “yes” to any of these questions, you’re in the right place. In this post, we’ll go over everything you need to know about debit card fees.

Partnering with a payment solution like Zenti can help you avoid high transaction fees and simplify your online customer experience with solutions that fit your needs. Learn more about our payment integrations here.

What Is Debit Card Processing?

Debit card processing allows businesses to accept payments via debit card. These payments are directly linked to a cardholder’s checking account and move directly from their bank to the merchant’s.

In eCommerce transactions, customers generally add items they wish to purchase to their carts and proceed to the checkout, where they are given several options to make their purchase, such as via credit card, debit card, and sometimes PayPal.

The steps in debit card processing are different than credit card processing. It begins with a processor reading the card information the customer entered and approving it through the card network. Then, the transaction amount is transferred from the customer’s checking account to the merchant account. The payment amount is automatically deducted from the cardholder’s bank account upon completion.

What Are the Benefits of Paying by Debit Card?

There are many benefits associated with paying by debit card over a credit card, including:

• No debt: Credit cards make it too easy for consumers to make purchases — even if they can’t afford what they’re purchasing. Debit cards allow consumers to avoid these pitfalls because the money comes directly from the cardholder’s account. There’s no risk of going into debt with a debit card since you can’t spend what you don’t have. There’s also no monthly bill to remember to pay.
• No application required: Consumers and small business owners who have poor credit will have a tough time getting approved for a credit card, and if they do, they will have extremely high interest rates to pay. With a debit card, there’s no application or credit check required.
• Fees: Although some checking accounts charge fees, and there are specific fees for merchants that accept debit cards, they’re nowhere near as high as credit card fees, which include late fees, annual fees and sky-high interest rates.
• Eliminate checks and cash: Checks and cash are becoming things of the past. Debit cards offer much more convenience than these outdated payment options. Plus, many vendors charge a fee, require a minimum before they accept a check, or simply don’t accept checks. 
• Don’t worry about having to stop by the ATM and pay withdrawal fees when you count on a debit card.

Debit Card Processing Fees: How Much Are They?

As of May 2022, the Federal Reserve reported the average debit card fee was 0.65% of the transaction amount, an average of 23 cents.

Like most other fees, debit card transaction fees vary greatly, depending on several factors, such as:

• Merchant category: If you’re purchasing from a business deemed “high-risk,” you will pay more in merchant fees when using your debit card. For example, the interchange fees at a gas station differ from those at a marijuana dispensary or adult entertainment store.
• Transaction type: There are a few different types of debit transactions, which can influence how much you’ll pay in fees. Most notably, whether the debit card transaction was authenticated using a PIN or signature. PIN authentication is considered more secure and reliable, meaning the transaction fees are lower than if the customer is only required to sign the receipt.
• Size of financial institution: Regulated and unregulated banks charge different fees. The Durbin Amendment made it so that banks and other financial institutions above a certain size are subject to strict caps on fees they can charge for debit transactions. If the institution holds more than $10 billion in assets, the maximum fee is $0.21 + 0.05%. 
• Card network: There are more than a dozen debit card networks across the U.S., each with its own fee schedule.
• Card-present or card-not-present transactions: During a card-present transaction, the customer has their debit card present with them to make the purchase. Card-present transactions are considered more secure than card-not-present transactions, where customers enter their details online or via phone. This results in smaller fees for card-present transactions than card-not-present transactions.
• Processor fees: In addition to the fees from card networks and financial institutions, cardholders are also subject to markup from the debit card processor, similar to credit card transactions. These interchange rates vary based on the processing plan. Some may charge a flat transaction fee, while others will charge variable merchant fees.

Now let’s take a deeper dive into the different types of payment processing and the fees that go along with them.

PIN Debit Card Fees

Although entering a personal identification number (PIN) is the preferred method of purchase authentication, that doesn’t mean there aren’t fees associated.

Once customers enter their debit card into the payment processor, they’re asked to enter their PIN to verify their identity.

The information from the PIN debit transaction is routed to the customer’s bank via a PIN debit network. The network is the entity that charges the processing fee.

PIN debit transactions generally have low percentage fees and certainly lower interchange fees than credit cards. Because of this, small-ticket transactions often cost more to process, meaning large-ticket PIN debit transactions are generally recognized as the more cost-effective option for merchants.

Signature Debit Card Fees

As we mentioned earlier, when a customer doesn’t enter their PIN, they can verify the purchase via their signature in what’s known as a signature debit transaction.

This happens after they swipe their debit card. Signature debit transactions get routed to the bank via Visa or Mastercard’s network.

The Cost Breakdown of Debit Card Transaction Fees

As you can tell by now, the amount you will pay as a merchant in debit card processing fees hinges on various factors. Here’s a breakdown of some of the fees:

• Percentage rate: A percentage of the entire transaction. For example, on average, interchange fees cost merchants around 1.40% of the total transaction value.
• Transaction fee: Most debit card processing rates include the percentage rate and a fixed transaction fee.
• Non-interchange fee: Additional fees that are applied to debit card usage across the border and when non-U.S. issued cards are used on the network.
• Flat switch fee: These flat fees are charged for things like routing payment information through the debit card network. These fees typically range from 3 to 10 cents per debit card transaction.
• Annual fee: Some networks charge yearly fees, which are flat fees that are the same regardless of transaction type.
• Processing fees: Payment processors are crucial in facilitating communication between all involved parties. This role includes moving the transaction information to and from banks and card processing networks. They also work to transfer the funds into the merchant’s account. Of course, no provider offers these services for free. There are four pricing structures that merchant services providers generally use:
  • Flat rate: This provides a fixed percentage interchange rate that stays the same for every transaction.
  • Tiered: Tiered pricing determines how much merchants will pay processing companies for each transaction based on the transaction type. This is one of the more expensive pricing models, and merchants who go this route often lose money because providers that offer this model usually focus on making the highest profit for themselves, not offering the best rates to their merchants.
  • Interchange-plus: These costs vary based on what type of debit card or credit card the customer uses because the first half of this equation is related to the interchange fee, which varies for each card. For example, Visa debit cards generally have an interchange fee of 0.8% + $0.15, whereas a Mastercard World Elite credit card’s interchange fee is 2.3% + $0.10 for each transaction — that’s an increase of more than 186%! A good rule of thumb is that the more prestigious a card is, the higher its interchange fee.
  • Membership/subscription pricing: Rather than fluctuating from transaction to transaction, subscription pricing provides merchants with a flat monthly rate, for example, $100 per month plus 8 cents per transaction, no matter the transaction type, whether the customer uses a PIN or signature, etc. Membership/subscription pricing models also give the merchant the benefit of paying the same flat fee, no matter how many transactions they process.

Typically, providers that offer interchange-plus or membership pricing are considered the most financially viable. In this model, merchants don’t have to worry about inflated prices or pricing structures that change on a dime, making budgeting extremely challenging.

As a leading provider of high-risk merchant account processing services, Zenti can help you choose the best payment processing service for your industry. We also ensure that all your transactions follow safety protocols so you won’t experience any problem processing payments due to security issues.

Can I Avoid Debit Card Fees?

There are a few ways consumers can avoid debit card fees, including:

• Keeping a minimum balance in their checking account. Some banks will waive monthly service fees for debit card users if their balance is above a certain threshold. It’s always worth giving the bank a call to see if there are any stipulations you can meet to avoid debit card fees. Some will even do this for a simple task like moving to online banking or opening a savings account with the same institution.
• Avoid withdrawing cash from ATMs that your bank does not provide. Some ATMs charge service fees up to $7 for withdrawals from competitor banks! To avoid these hefty fees, only withdraw cash from ATMs sponsored by your bank, and try to keep a little bit of cash on hand in case you run into a situation where your bank ATM isn’t available.
• Don’t overdraft your account. When using a debit card, it’s essential to know your budget and stick to it. Otherwise, you risk being charged upwards of $35-$40 for each overdraft fee! That can add up fast. To avoid this, ensure you always have enough money to cover your purchases before swiping your card. Don’t forget to account for any bills you may have on autopay and other expenses that pop up.
• Switch banks. When in doubt, switch your financial institution. Is your current bank dinging you each month for not maintaining a sufficient balance to avoid fees? Are there any bank-sponsored ATMs in your area? Do you suffer from overdraft fees? It may be time to consider switching to a bank that offers a more user-friendly debit card program.

Zenti Can Help

Zenti offers a number of solutions for merchants, including high-risk merchant services, retail, and ACH payments. Our solutions can help you streamline debit card processing fees and keep the most money in your pocket. Best of all, when you partner with Zenti, you don’t have to worry about hidden fees. We don’t charge startup fees, authorization fees, statement fees, refund fees, PCI-compliance fees or business card fees — ever. Contact us today to learn more.