Debit Card Processing 101: A Quick Overview for Merchants

Jan 2nd, 2024

Payment Processing AscentZeroCost General

Paying with plastic is a way of life for most of your guests. Many people no longer carry cash and loose change, instead preferring the convenience of simply swiping a debit card or paying online.

But unlike cash, debit cards come with processing fees and require special means to accept. If you’re on the fence about accepting payments via debit card, you might be wondering how it all works.

In this quick guide, we’ll walk through everything you need to know about debit card processing and implementing it in your business.

What is Debit Card Processing?

A debit card is a payment card that deducts money directly from a consumer's checking account to pay for a purchase, and debit card processing is the ability to accept these payments for your business. This type of electronic funds transfer does not involve paper money or checks.

Customers will view the process in much the same way as credit card payments because the interface tends to be almost identical from their vantage point. For online payments, all they have to do is enter their debit card details and follow the prompts on the screen. When paying in person, they simply tap, insert, or swipe their debit or credit card the same way.

However, the logistics of credit cards vs. debit cards are different for payment processors and merchants. Credit cards allow your customer to pay with money that they do not have, taking money from their open-to-buy credit line with their card issuer. Debit cards, on the other hand, allow them to render payment directly from their bank account. In other words, they already have the funds available to pay for your services.

The Basics of Debit Card Transactions

How does a debit card transaction work behind the scenes? The good news is that payments from debit card transactions are as fast as credit card payments. They often appear seamless from your perspective, though a lot of important things are happening away from where your eyes can see.

Here is what you can expect from a debit card transaction:

Your customer enters their card details on your payment website or via a terminal.
The point-of-sale system or software relays the data to the card processing network.
The card processing network verifies the details and evaluates the transaction to calculate the likelihood of a fraudulent transaction.
The data is sent from the processing network to the customer’s bank.
The bank ensures that funds are available and sends the approval to the merchant.

This is the basic rundown on how debit card processing functions where you cannot see the ins and outs of the transaction. There are also some other nuances in terms of debit card processing in the form of other payment types.

These four types of transactions are options for your debit card processing transactions:

PIN: PIN transactions require your customer to enter their PIN at the checkout. These transactions often feature lower percentages but higher transaction fees, so plan accordingly.
Signature: Instead of entering a PIN, signature transactions require a signed receipt from the customer. They are the opposite of PIN transactions with higher percentages and lower transaction fees.
Contactless: Customers who want to make a mobile transaction will use contactless payments to pay with a card, watch, or smartphone held against a terminal. If using a mobile wallet, the transaction proceeds very similarly to a PIN transaction.
Card Not Present (CNP): These transactions take place over the internet or when card details are typed into the payment processor. They are processed via credit card networks and can be a bit more expensive for you to accept.

Benefits of Accepting Debit Cards

Now that you understand how debit card processing works, let's explore the benefits of accepting debit cards. Cash has no fees associated with it, so why should you accept debit cards when fees can eat into your overall profit?

Today, most people are far more inclined to pay with plastic than cash. Customers expect these payment methods to be always available because of the convenience and general prevalence of credit and debit cards. Offering debit card processing allows you to capture more bookings, since customers may abandon their purchase if they can’t pay with a debit card.

It’s true that debit cards incur processing fees, but they are lower than the processing fees for credit card and cryptocurrency transactions. Fees will vary depending on what type of transaction you implement, but debit card processing fees are generally lower no matter which you select.

Just keep in mind that although debit cards mean lower fees for you, restricting other payment options might frustrate your guests. Compliant surcharge solutions like AscentZeroCost can encourage customers to choose lower-fee debit cards without taking away their freedom of choice for payment methods.

Another benefit of accepting debit cards is that you get fast payment processing, which helps improve cash flow. Every business needs to make sure that their money is coming in and out correctly, and debit card processing makes this simpler.

Best Practices for Debit Card Processing

Once you have come around to debit card processing, here are a few of the best practices to help you make the most of it.

Handling Disputes and Chargebacks

One way to deal with disputes and avoid or prevent chargebacks is to always issue a digital receipt for a new reservation. Not only does this jog their memory when they see the charge on their statement, but it also gives you a leg to stand on if your customer were to dispute the transaction. It’s best to list your refund policy directly on the receipt where it’s easy to find.

Offset Fees and Minimize Costs

One thing you can do to minimize your out-of-pocket cost is offset payment processing fees with a convenience fee or cash discount. A convenience fee is often a flat fee or a small percentage for accepting payments through an online portal. A cash discount offers guests discounts for choosing payment processing with lower fees like ACH or debit cards.

A surcharge is also an option for merchants. This does not apply to debit card transactions but can help offset higher credit card processing fees if this is the route you decide to go.

Keep in mind that you can only apply one of these options. You can choose either a convenience fee, a cash discount, or a surcharge – not all three – and it must be consistent across all transactions. You can’t pick and choose when to apply one versus another.

Reduce Risk with Trust Accounting

For industries such as vacation rentals, property management, and real estate, trust accounting serves to reduce risk when it comes to chargebacks, and is a general best practice regardless of which payment methods you offer.

Within this model, trust accounting requires the funds to be held in a trust account for a given period. Alternatively, the funds may be held until the reservation is complete. With the funds in escrow, it allows the rental manager to debit the funds back to the guest if they decide to cancel their booking.

This is particularly useful if there is a sudden influx of cancellations which might prove problematic for your company. Because the funds are held in a separate account, you have a lower risk and so does your payment processor.

Security and Compliance

In addition to all of the other practices on this list, you also need to ensure that your customer’s data is protected via PCI compliance and increased security at your checkout point. Make sure that any time you are accepting debit cards, security is at the forefront.

This means you need to consider all of the following:

Firewalls
Password protection
Encryption of cardholder data and transmitted data
Data access restrictions with unique IDs

Make Accepting Debit Cards Easy with Ascent

Ascent offers the cutting-edge payment processing tools you need alongside responsive, US-based customer service. You can start to implement debit card processing within your business quickly and easily, and we make it easy to switch providers and even add gateways. Our technology helps ensure that you get the money you are owed for services rendered.

If this sounds like something you could use help with, contact us today to see how we can help you make payments more convenient for your customers!