PIN Debit vs. Signature Debit – which one should I use?

PIN vs. Signature – What’s the Difference?

There are two basic types of debit transactions – PIN Debit, and Signature Debit. You could consider card-not-present debit card transactions as a third type, but since you have no control over them, let’s just set that aside.

PIN Debit occurs when a customer swipes or dips their card and then enters a Personal Identification Number (PIN) on an adjacent keypad to verify they are the owner of the card. It’s also what happens if the customer is presented with the options for Credit or Debit, and they select Debit. What you may not know is that PIN Debit transactions process on different networks than credit cards. This is why you will see a separate logo on the back of your debit card, for Maestro, Accel, Star, etc. (Not to get too techie, but you may hear these networks referred to as “rails” rather than networks – that’s old payment industry lingo.)

Signature Debit is when the customer swipes a debit card as though it were a credit card, and then signs the printed receipt or enters a digital signature. This typically happens when a customer uses a debit card, but cancels the PIN and selects to process the card as “Credit”. These transactions run on the standard Visa / Mastercard networks / rails.

What about Online vs. Offline?

Another industry term – PIN Debit transactions are often referred to as Online transactions, with Signature Debit predictably called Offline. This has to do with the debit networks being considered online or real-time as they dip directly into your customer’s checking account and take the money when the transaction is processed, whereas offline transactions authorize the use of the funds, but don’t capture them until the transaction settles overnight.

How does Interchange Vary between PIN and Signature Debit?

As a refresher, Interchange is the amount charged for the use of any card, as defined by a combination of the bank that issued it, and the brand that it carries. This is true for both Credit and Debit cards.

Where Debit cards differ slightly over credit cards is that certain debit cards are Regulated, meaning the Federal Government has set their Interchange rather than allowing the banks to do it. Regulated cards are issued by the big banks (i.e. over $10B in assets), and smaller bank cards and credit unions are typically unregulated. Regulated cards transact at the same Interchange regardless of whether you use PIN or Signature Debit.

However, unregulated cards (called Exempt in industry terms), may have completely different interchange rates when accepted as Signature Debit rather than PIN Debit.

Here’s an example of one Interchange category, and the difference between Regulated and Exempt card acceptance:

Which Costs Less – PIN or Signature?

We know that’s what is top of mind – which costs me less as a merchant to accept? Sadly, the answer is a bit complicated. Since the total cost of any single transaction is made of multiple components, factors such as the size of the transaction come in to play.

Without going into too deep a dive on Interchange, it’s important to know that there are two components to the cost – the variable component (driven by the size of the transaction) and the fixed component (a transaction fee). Interchange is usually expressed in the form of, for example, 0.20% + $0.15, where the variable component is 0.20% of the transaction amount, plus $0.15, the fixed transaction fee.

Because both those numbers can vary wildly, there is no perfect answer to which is cheaper. But a general rule of thumb is that for smaller transaction values, Signature Debit is less expensive to process, and for larger transaction values, PIN Debit is. This is because of the Interchange rates for PIN Debit having a lower variable cost and higher fixed cost, whereas Signature Debit has a higher variable cost and lower fixed cost. Because of this, the fixed part of the Interchange becomes a smaller component of the total fees as the transaction amount increases.

On top of the Interchange costs for a debit transaction, there is also the margin from your processor. In Dharma’s case, it’s important to note that we don’t differentiate between Signature and PIN Debit when it comes to our pricing, so the Dharma fee you were quoted for your account is the same no matter how you process the transaction.

And there is one final cost to accepting PIN Debit, the annual network access fee. Because those networks are separate entities, they each have a small charge associated with access. You can learn more about the PIN Debit Annual Fee here.

To Sum it Up

This is one of those situations where there is no easy answer. For some merchants, PIN Debit will be more cost effective. For others, Signature Debit is the way to go. As we noted above, it has to do with the size of the transaction, the card network it runs on.

Hopefully we’ve given you enough information to create a better understanding of the two options. You will need to look at your specific sales characteristics and make a determination for yourself. In our experience, it all comes down to transaction size: the smaller the transaction (for example, ice cream stores, coffee stores, etc.), the better suited it is to Signature Debit; and the higher the transaction size, the more PIN Debit will benefit you. Of course, if you would like to discuss your particular situation, Dharma Support is always happy to assist.