Debit vs. Credit Cards: What Merchants Need to Know

From online bill payments to booking airfare and hotel rooms, consumers rely on debit and credit to fuel their daily lives. If you’re thinking about accepting cards for payment and want to know the true advantages for your business, here are some factors to consider:

The Skinny on Each Card Type

You may already be aware that debit transactions take cash from available funds in a checking or savings account, while credit transactions are a loan against available credit.

When a customer uses his debit card, his or her unique account data information is instantly sent to a card-processing network. The network verifies electronically with the bank that the card hasn’t been stolen and that there’s enough money in the account to approve the purchase. The bank then either approves or denies the purchase through the processing network, alerting your business. Finally, at the end of the day, the network coordinates payment settlement from your customers’ banks, and transmits those funds into your account.

On the other hand, while credit works in a similar fashion, the money your business receives represents funds loaned to your customer against his available credit.

What Do Merchants Need to Know About Accepting Cards?

Each time a customer uses a card at your payment terminal — or virtually on your website or through a mobile payment app — your business pays a fee to both the processor and the bank. These fees vary based on multiple factors, such as whether or not the transaction took place in a physical store or virtually. Online transactions, where the card is not presented to you or your staff, can be more expensive.

When it comes to credit and debit cards, processing fees can vary, too. The biggest advantage for businesses with debit cards is the lower processing rate. Why? Debit transactions are essentially cash transactions, and the bank assumes almost no risk. However, in a credit transaction, the bank is loaning funds it may not get back. This is why it charges more per transaction for credit cards.

BillingTree provides businesses with a powerful solution for credit card processing and accepting debit card payments that is fully PCI compliant and optimized for card-not-present environments.