Q: The terms "PIN-based" and "signature-based"
often come up in discussions about debit card acceptance.
What do these expressions mean? And how do the payment
A: The terms refer to the two distinct ways in which debit
payments are processed: online and offline. Online debit
transactions call for customers to endorse payments by
submitting their personal identification numbers (PINs)
at the point of sale, while offline transactions require
shoppers to sign sales receipts. The following information
can help you understand more about PIN-based and signature
based debit transactions, and how each payment option
can benefit your business.
Online (PIN-based) Debit
PIN-based debit transactions are fast, convenient and secure.
In brick-and-mortar environments, shoppers initiate online
debit payments by swiping their debit cards through magnetic
card readers. The customers then key their secret codes
into encryption devices called PIN pads. The transactions
are authorized in real time, funds in the customers' accounts
are captured immediately, and money is transferred into
storeowners' account s in two to three business days.
Merchants pay a nominal transaction fee. And because the
customers authorize their purchases with PINs, the risk
to merchants of chargebacks is virtually nonexistent.
To accept online debit payments, you must have a merchant
account, debit processing service, a payment terminal,
a receipt printer and a PIN pad. Many payment processing
companies offer both credit and debit card services, but
you must be approved for them separately. You can obtain
a terminal and printer with an integrated PIN pad or purchase
a discrete (free-standing) PIN entry device and connect
it to your payment system. Just remember that your customers
must be able to access the device and enter their codes
Practically speaking, this type of debit transaction is
currently available in the physical world only, not the
Internet. A number of financial institutions have introduced
technology that may advance the development of PIN-based
debit processing on the Web, such as digital certificates,
smartcard solutions and compact disk-based systems. But
no widely-accepted operating standards have yet been established.
Offline (Signature-based) Debit
Unlike online debit transactions, offline debit payments
do not involve PINs. Offline debit cards (aka check cards)
are typically issued by credit card companies through
their participating banks. The cards may be used everywhere
credit cards are accepted, including over the Internet.
In the physical world, customers who choose to make offline
debit purchases must hand over their check cards. Merchants
swipe the cards through their payment terminals and complete
the debit sales the same way they process credit card
transactions. The customers then sign sales drafts that
authorize the merchants to charge their accounts. On the
Web, customers enter check card information into browser-based
forms, just as they would for credit card purchases. The
data is encrypted, captured by transaction processors,
and sent to the credit card processing networks for authorization.
Transactions normally settle in two to three business
days. Because check card transactions are processed through
the same networks as credit cards, they often incur the
same discount rates and transaction fees. If your business
is already equipped to process credit card transactions
(i.e., you have a merchant account, credit card processing
service, and either a terminal and printer or payment-processing
software), you should also be able to process offline
Why PIN Is In
Both forms of debit acceptance let merchants offer payment
flexibility to their customers, which in turn can capture
impulse buying, generate higher-ticket purchases and improve
customer loyalty. But PIN-based debit transactions offer
added advantages, such as:
1. The option to provide cash back to customers, which
increases store traffic
2. A fast way to move shoppers through the checkout line
3. Virtual elimination of chargebacks and fraud
4. Lower transaction costs
5. Higher transaction approval rates
6. Potential for additional revenue from surcharges
The benefits are clear. With minimal investment, brick-and-
mortar merchants can use PIN-based debit transactions
to help increase their sales and profits. Get yourself
a PINPad if you are a storefront merchant and make sure
your Merchant Account Provider has properly set you up
to accept On-Line (Pin-Based) Debit cards. By recognizing
a "check card" as a Debit Card you can convert say a 1.5%
discount rated fee - or $1.50 your cost on a $100.00 purchase
- to a $0.57 cent transaction fee. This is a savings of
almost $1.00 per sale. It doesn't take long to add up.
How Debit Card Acceptance Can Help You
What does the distinction between signature-based and
PIN-based debit mean to your business?
If you're an Internet merchant, check card acceptance
can give you access to buyers who may not qualify for
credit cards, such as teenagers. Plus, you receive funds
from approved transactions quickly and securely. Perhaps
most important, you can accept signature-based debit payments
with relative ease because they're processed much like
credit card sales.
If you own a business in the physical world, you enjoy
the flexibility to process signature-based debit payments
as well as PIN-based transactions, which provide increased
security and opportunities to generate additional revenue.
Contact a payment service provider with experience in
debit processing to learn about the payment options that
best suit your business - and discover how debit card
acceptance can help improve your company's bottom line.