When it comes to payment processing, credit cards usually grab the headlines. However, approximately 29% of all U.S. payments in 2020 were made with a debit card — and a Federal Reserve study back in 2019 found that debit cards were the most popular method amongst consumers. 

With almost one-third of customers using debit cards, small business owners should aim to give their customers the payment options they want and expect. The right merchant services provider will make debit card processing possible — and make it efficient and cost-effective for your business.

We’ll explore what debit cards are and how they differ from credit cards, how debit card processing works, and the technology your business needs to make debit card processing as seamless as possible. 

What Is a Debit Card, and Is It Different Than a Credit Card?

When a customer opens a checking account at a financial institution, like a bank or a credit union, they receive a debit card that allows them to withdraw cash from an ATM or make purchases.

Debit cards look just like credit cards, but they’re not the same. Since debit cards are tied to a bank account, money is automatically deducted from the customer’s account when a purchase is made. This makes them a convenient alternative to cash or checks.

So, how does this differ from a credit card? When a credit card payment is made, the customer doesn’t need to have the funds immediately available in their checking account. Instead, their credit card issuer is lending them the money and paying your business for the purchase. The customer then pays the credit card issuer back later.

But these aren’t the only differences between credit and debit cards. There are some differences for you — the merchant:

  • Depending on your merchant services provider, processing fees are often higher for credit card transactions than they are for debit card transactions.
  • You can’t use a surcharge program with debit card transactions (whereas you can with credit card transactions). With a surcharge program, the customer is responsible for paying the credit card processing fees if they choose to pay with a credit card. A customer can avoid the fee by paying with cash or a debit card.

How Debit Card Processing Works for Merchants

debit card processing: Close up shot of a stack of credit cards

To the average person, debit card processing — or just about any type of payment processing — is shrouded in mystery. 

“What exactly happens once I swipe the card?”

“What data is sent where, and why?”

“What’s happening between swiping the card and the payment being accepted?”

This confusion is understandable. However, the process isn’t all that complex — so let’s examine the seven steps that occur whenever a customer makes a debit card transaction. 

  1. At checkout, the cardholder uses their debit card to pay.
  2. The card number and bank account information is received by your point-of-sale system (POS system), credit card machine, or virtual terminal. 
  3. This data is then relayed to the customer’s card processing network (e.g., Visa, American Express, Discover, Mastercard, etc.).
  4. Once the processing network receives the data, it evaluates the transaction for potential signs of fraud.
  5. If it seems legitimate, the processing network then passes the data on to the customer’s bank (also known as the issuing bank).
  6. The bank confirms that the customer does indeed have enough money to pay for the transaction in question. 
  7. Once this has been confirmed, the bank approves the transaction and the payment can go ahead as planned.

Fortunately for customers and merchants alike, this seven-step process only takes a few seconds to complete. 

Depending on which payment processing company you use, your business will receive the funds within 24-72 hours.

What Are the Normal Debit Card Processing Fees?

Unfortunately, there’s no easy answer here. A variety of factors influence the precise debit card processing fees that you’ll pay for any one transaction. 

This is largely dictated by the interchange fees — in other words, the fees paid to debit and credit card networks in order to process the transaction. 

Interchange fees in the U.S. differ depending on whether a customer is with a regulated or unregulated bank. For reference, regulated means that the bank holds more than $10 billion in assets, while unregulated banks hold fewer than $10 billion in assets.

For regulated banks, the fees are fairly simple.

However, if a customer is with an unregulated bank, then the fees might vary according to:

  • The transaction’s value
  • The merchant’s category code (i.e., the industry in which they operate)
  • Whether the customer is present for the transaction or not (i.e., if it takes place face-to-face versus online or on the phone)
  • Whether the customer used their personal identification number (PIN) or signed with their signature

The Technology You Need to Process Debit Card Payments

Portable POS terminal

The right payment processing solution is worth its weight in gold for retailers and merchants.

The right solution will be cost-effective and easy to use. It will also provide you with the tools you need to start processing debit card payments right away. 

The technology you need depends on your specific business needs.

If you process in-store transactions, you’ll need a credit card machine that accepts debit cards. For a business that makes sales on the go, you’ll need to be able to take mobile payments. Lastly, if you have an e-commerce business, you’ll need to use a virtual terminal to process debit card payments online.

The Best Payment Processor for Debit Card Transactions

If you use Nadapayments as your payment processor, you’ll receive a Wi-Fi-enabled EMV Quick Chip terminal with the Nadapayments app preinstalled. Simply plug it in, and you’re ready to start accepting debit cards.

But it doesn’t stop there. With Nadapayments, you’ll also be able to accept credit cards, Apple Pay, Google Pay, and contactless payments. Plus, in addition to the EMV Quick Chip terminal for in-person transactions, you’ll have access to a virtual terminal for online payments.

Best of all, Nadapayments keeps it simple — debit charge transactions will only cost you 1% + $0.25. As an added bonus, if a customer chooses to pay with a credit card instead of a debit card, you won’t spend a dime on transaction fees thanks to Nadapayments’ surcharge program.

Transform Your Debit Card Processing Today

Your customers will expect to be able to use debit cards as a payment method. So you want to make sure you have the technology you need to accept them. Even though debit and credit cards may look alike, they actually work differently behind the scenes. 

While it’s good to have an understanding of how debit card processing works, luckily your payment processor will do the heavy lifting, so you can focus on making sales and serving your customers.

With Nadapayments, debit card processing is as easy as one, two, three. Plus, you’ll have a built-in surcharge program to help you save on credit card transactions. Get started today and embrace the future of debit card processing — saving you time, hassle, and of course, money.