Debit Cards Vs. Credit Cards – How Payment Processing Works

Electronic payment processing enables consumers to peruse shopping centers, travel destinations and restaurants without carrying a wallet full of cash. Generally, this is also great for merchants, as studies have shown that customers who prefer to pay with plastic cards instead of paper bills will often spend more money. When comparing debit cards versus credit cards and how payment processing works, the benefits of merchant processing services are clearly value-driven for forward thinking business owners.

Debit Cards Are Conveniently Processed

Consumers enjoy the advantages of shopping with a debit card. In addition to the safety features and convenience, a debit card enables a cardholder to pay for goods or services with funds that are available for use via a bank account.

Debit cards may be linked to a personal checking account, a savings account or to a business account.

When shopping with a debit card that reflects a Visa or Mastercard logo, the amount of money that a user has in his account may be used for a variety of goods and services.

Therefore, a consumer who uses a debit card at checkout to pay for groceries should receive an approval within a few seconds for a point-of-sale transaction, where a sufficient amount of funds are in his bank account.

However, the time frame for a merchant to receive the funds within her bank account could take up to three days.

When a debit card is dipped into an electronic card reader, a series of verifications are securely performed to validate the transaction.

An authorization process quickly checks the debit card number against the personal identification number (PIN) that is used to ensure that the actual cardholder is the person who is presenting the card. Additionally, the issuer verifies that the cardholder has enough funds to complete the transaction and confirms that the debit card was not reported as lost or stolen.

Certain transactions may allow a consumer to use a debit card with a PIN or a debit card and a signature for transactions that are swiped, versus dipped.

According to Bankrate, information used for a debit card authorization, such as the cardholder’s 16-digit debit card number, PIN, purchase amount, date, merchant’s name and the merchant category code will be encrypted and sent to the card issuer.

Upon issuing an approval for a debit card purchase, the respective bank will remove the amount spent from a cardholder’s available balance. Usually, the cardholder’s account will reflect “Pending” or “Processing” for the specific transaction.

At the end of the day, a merchant will resend approved transactions to the network for clearing.

The cardholder’s bank will deduct an interchange fee prior to transferring the funds and send a portion of the fee to the network.

The merchant will receive a bank deposit for the amount that remains, after a processing fee and a discount rate are deducted.

Credit Card Processing Works Similar to Debit Card Processing

Unlike a debit card transaction that pulls funds from a customer’s bank account, a credit card provides funds to finance the cost of goods or services.

Also, debit cards may be used without minimum purchasing thresholds, while some merchants may require credit cardholders to spend up to $10 toward purchases. Merchants may even assess surcharges to help offset certain processing fees.

Credit cards can present greater risks for fraud, as some transactions may be completed with just a PIN-pad signature. Whereas, a debit card transaction will require a purchaser to enter a personal identification number that is associated with the card.

According to Value Penguin merchants pay more money for accepting credit cards than the fees that are charged for debit card processing.

Valued Merchant Services offers competitive debit card and credit card processing services.

Contact us today about reliable checkout solutions for business owners.

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