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Debit Card Fees: To Pay or Not to Pay

Živile Šarkauskaite

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Živile Šarkauskaite

November 28, 2023

As we transition further into a cashless society, technology is evolving rapidly, offering enhanced security and the convenience of making and accepting low-cost payments directly through our phones. This shift is generally considered positive.

In the current business environment, it’s a rarity to find a business that doesn’t accept card payments. Therefore, often the pivotal question arises: What are debit card fees that businesses have to pay for processing card payments?

Debit cards

Even though debit and credit cards look similar, their operational mechanisms differ in features and services.

During a credit card transaction, the card issuer covers the cost on behalf of the customer, collecting funds from them later. On the other hand, when customers use debit cards for purchases, the funds are promptly withdrawn from their bank account.

Unlike credit card transactions, the success of a debit card transaction hinges on the customer having sufficient funds in their account. Essentially, it distinguishes between immediate payment and deferred payment for the consumer.

For merchants, this difference translates into varying fees. Debit cards, considered a lower risk due to the availability of funds, typically incur lower fees than credit card payments.

Do debit cards have fees?

When it comes to debit card transactions, three key players are involved: the bank, the credit card company, and the debit card or payment processor. Each entity uses its debit processing fees, involving flat fees and/or percentages of the purchase price.

Banks charge businesses interchange feescredit card companies impose assessments, and debit card processors levy markup fees.

Banks or credit and debit card companies generally do not directly charge these fees to consumers. Businesses accepting debit card payments incur debit card processing fees.

When a person makes debit card transactions, the accepting business has to pay various fees, including interchange fees, assessments, and any applicable debit card fees charged by payment processors.

How much are debit card processing fees?

It is difficult to give one universal answer on how much will it cost to make a debit card transaction.

Exempt debit transactions have an average interchange fee of 1.19% per transaction or $0.52. Meanwhile, covered debit card transactions cost less. They have a lower average debit card interchange of 0.48% or $0.23.

It’s worth noting that all these rates are significantly lower than average credit card processing fees.

Interchange fee

The interchange fee is a percentage deducted from each credit card transaction, set by the credit association, with part of it going to the issuing bank. The bank issuing the debit card to the customer is the entity that imposes an interchange fee.

These debit card processing fees, charged by the issuing bank, vary based on factors like your industry, business type, debit card features, transaction type, and the bank’s size. Moreover, debit cards cost merchants less than credit card transactions.

An interchange fee usually has a flat per transaction amount and a percentage of the total, and they can change. The average interchange fee is between 1% and 3%.

However, the number can change semiannually. Therefore, stay updated on any rate adjustments for accurate planning and budgeting.

Many prefer the clear Interchange Plus pricing, which includes the interchange rate and an agreed-upon markup, avoiding other structures with higher markups.

Besides interchange or debit network fees, payment processors might add separate debit card merchant fees.

Assessment fees

Credit card companies, such as Visa or Mastercard, actively charge assessment fees on your total monthly sales for each credit card brand, and businesses pay this fee directly to credit card associations. This fee covers operational costs.

Credit card networks handle the processing of signature debit transactions and e-commerce transactions. It means that even if you’re making a debit card purchase, you’ll still incur fees to cover the operating costs of the credit card company.

Assessment fees are usually a percentage of the transaction amount. For example, Visa’s debit card assessment fee is 0.11%, and Mastercard’s is 0.125%.

📚Related: The Maestro Debit Card: An End and a Beginning

Markup fee

Payment processors, such as STAR or NYCE, apply markup fees to transactions on top of the interchange. Markup fees can be subject to negotiation. It covers a flat rate per transaction and a percentage of the transaction amount, typically averaging around 2.9% + $0.30.

Research to identify a processor that aligns with your needs, considering different pricing structures and potential annual fees.

Can you reduce interchange fees?

Interchange rates are fixed and cannot be negotiated. However, there are ways to adjust how you process credit cards and settle transactions, aiming for a lower interchange category.

This practice, known as interchange optimization, ultimately leads to lower interchange fees per transaction.

Furthermore, you can work on reducing other rates and fees charged by your processor. The transparency of this process may vary.

Be cautious of interchange padding, where processors add to the interchange fee without informing the merchant, listing it simply as an interchange fee on the bill. It can create the impression that the rate is non-negotiable.

Identifying padded interchanges individually can be impractical for most merchants due to the complexity of the charts. It’s advisable to consult with a professional advisor to understand how you’re being charged interchange fees.


Debit card transaction types

Understanding the distinction between types of debit card transactions is crucial because they can result in significantly varied fees. The two main types of debit card transactions are signature debit and PIN debit.

Signature debit transactions

During a signature debit transaction, customers provide a signature for identification, similar to a credit card transaction.

Processed through credit card networks like Visa or Mastercard, the system immediately deducts funds from the cardholder’s account, and merchant fees stem from the credit card network.

Common in e-commerce, these transactions are treated similarly even when the customer is not physically present.

When a debit card is swiped for a credit transaction, the customer signs the sales receipt instead of entering a PIN. These offline debit transactions route through the Visa or Mastercard network, not the debit network.

It’s crucial to note that, although processed as a credit, the funds are not borrowed. They are drawn directly from the customer’s checking account.

PIN debit transactions

PIN debit transactions involve customers entering their personal identification number (PIN) into a physical terminal after swiping or inserting their debit card.

This method serves as a means of identifying the cardholder without requiring a signature and is not available to e-commerce merchants.

Generally, you don’t need any physical signature, and they are often termed online debit transactions as payment information is processed through the debit network (such as Interlink or Maestro) instead of the credit card network (Mastercard or Visa).

While PIN debit transactions are less risky, resulting in lower fees, the rates for both transaction types can vary based on several factors, which will be explained in the next section.

Regulated and unregulated debit cards

In credit card processing, the term regulated debit specifically applies to cards issued by a bank or credit union with $10 billion or more in assets. In contrast, smaller banks issue unregulated debit cards.

Regulated credit and debit cards face an interchange cap, currently set at 0.05% plus 22 cents per transaction. Despite this cap, processors can add markup fees, increasing the total cost of regulated debit transactions.

Conversely, banks with less than $10 billion in assets, termed unregulated debits, have variable interchange charges.

Mobile payment processors

Mobile payment processors, also known as Payment Service Providers (PSPs) are increasingly popular for small businesses accepting debit and credit card payments.

They typically employ a flat-rate pricing structure, ensuring consistent transaction costs for various card types without monthly fees or additional costs beyond transactions.

Choosing PSPs is known for its affordability and simplicity compared to traditional merchant account systems. As your business scales up, it’s crucial to evaluate the potential cost-effectiveness of other systems.

For on-the-go businesses, mobile credit card processors and readers facilitate in-person payments. They may offer standalone portable devices or Bluetooth-connected readers for smartphones or tablets.

Features include free or affordable credit card readers, competitive processing fees, and compatibility with point-of-sale (POS) systems.


Why are small businesses charged debit card fees?

With each credit or debit card transaction, sellers face fees, as banks, credit card companies, and debit card processors expect payment when a debit card is used at a business.

Most credit/debit card processors apply a minimum monthly service fee to their business customers to guarantee profitability.

However, your payment processor refrains from adding a service charge if your monthly transaction fees exceed the established minimum threshold.

Is it legal to charge a debit card fee?

In many countries, regulations prohibit businesses from charging customers surcharges on debit or prepaid card purchases.

State laws in different locations permit businesses to impose surcharges for credit card payments. However, no state allows surcharges for debit cards by law, even when the transaction is processed as credit.

Do debit cards cost businesses less in processing fees than credit cards?

Debit card processing fees are generally lower than credit card fees because they are deemed less risky and constrained more by law.

Debit cards typically impose an average debit card transaction processing fee of approximately $0.07 on merchants. In contrast, credit cards often carry a fee of 2.3% with a $0.10 transaction fee.

What does it cost to get a debit card?

Most banks and credit unions issue free debit cards upon opening a checking account. Activate it by following the instructions and setting up your PIN for ATM use and purchases. Additionally, consider choosing a prepaid debit card.

Can you be charged an interchange and assessment fees?

Regardless of size or specialization, businesses accepting credit and debit cards must pay both interchange and assessment or interchange and markup fees.

The card networks set interchange fees, which businesses remit to the bank that issued the customer’s card. Credit card companies charge assessment fees. On the other hand, debit card providers charge markup for the utilization of their networks.

How much does a debit card transaction cost?

Businesses that accept debit cards must remit debit card fees to the provider. Typically, these fees range between 1% and 3%. However, they can reach as high as 6% on each sale, covering all other transaction fees.