PIN Debit vs. Signature Debit

PIN vs. Signature – What’s the Difference?

There are essentially two main types of debit transactions: PIN Debit and Signature Debit. You could consider card-not-present debit transactions as a third category, but since they're beyond your control, we’ll leave them out for now.

PIN Debit happens when a customer swipes or inserts their card and then enters a Personal Identification Number (PIN) on a keypad to confirm they are the card owner. This also occurs if the customer chooses the Debit option when presented with the choice between Credit or Debit. Interestingly, PIN Debit transactions are processed on different networks than credit cards, which is why you'll see logos such as Maestro, Accel, or Star on the back of your debit card. (In industry terms, these networks are sometimes called "rails.")

Signature Debit occurs when a customer uses a debit card like a credit card and signs the receipt (either on paper or digitally). It typically happens when a customer uses a debit card but cancels the PIN and opts to process it as “Credit.” These transactions are processed via the Visa or Mastercard networks.

Online vs. Offline

In industry jargon, PIN Debit transactions are often referred to as Online transactions, while Signature Debit transactions are known as Offline. This terminology comes from PIN Debit transactions being processed in real-time, directly pulling money from the customer’s checking account when the transaction is processed. Conversely, Offline transactions authorize the funds but do not capture them until the transaction settles at the end of the day.

Interchange Differences between PIN and Signature Debit

Interchange is the fee charged for using any card, determined by the issuing bank and the card brand. This applies to both credit and debit cards.

Debit cards have an additional distinction where certain cards are Regulated, meaning the Federal Government sets their Interchange fees rather than the banks. Regulated cards are issued by major banks (i.e., those with over $10 billion in assets), whereas smaller banks and credit unions typically issue unregulated cards. Regulated cards have the same Interchange fees regardless of whether you use PIN or Signature Debit.

However, unregulated (or Exempt) cards can have significantly different Interchange rates between Signature and PIN Debit transactions.

Which Costs Less – PIN or Signature?

Which option is cheaper for you as a merchant? The answer depends on multiple factors, including the size of the transaction.

Interchange costs consist of two components: a variable component (based on transaction size) and a fixed component (a transaction fee). For example, an Interchange rate might be 0.20% + $0.15, where 0.20% is the variable fee, and $0.15 is the fixed fee.

Generally, Signature Debit tends to be cheaper for smaller transactions, whereas PIN Debit is more cost-effective for larger transactions. This is because PIN Debit typically has a lower variable cost but a higher fixed cost, while Signature Debit has a higher variable cost and lower fixed cost. Thus, as transaction amounts increase, the fixed portion of the fee becomes less significant in the total cost.

One extra cost to consider with PIN Debit is the network access fee. Each network charges a small access fee, usually a few dollars per month.

In Summary

There isn’t a one-size-fits-all answer. For some merchants, PIN Debit will be more economical, while for others, Signature Debit will be better. It largely depends on the transaction amount and the card network.

Understanding these differences lets you make informed decisions based on your business needs. Generally, smaller transactions (e.g., ice cream or coffee shops) benefit more from Signature Debit, while larger transactions are better suited for PIN Debit.

For personalized advice, Allied Payments is always here to help.