As you probably know, there are a few key differences between a credit card and a debit card. Credit cards work much like bank loans. You get a statement at the end of the month, and you can pay off the entire balance or only a portion of it while paying interest on the rest.
By comparison, debit cards are more similar to simple cash or check transactions. When you use a debit card, the merchant takes the money out of your bank account immediately. You also won’t have to deal with any additional statements.
For merchants, there’s not much difference between these two methods of payment, since they typically receive the money within the same timeframe. That said, there are a few situations where the cost of processing a credit card transaction will vary from processing a debit card.
For example, let’s assume that you’re using a point-of-sale terminal. Once you swipe, tap, or dip your debit card, the terminal will ask you to choose between debit and credit. Though you can answer credit, that won’t suddenly transform your debit card into a credit card. What it will do is affect the merchant’s costs of processing this particular transaction.
Why the Difference Between Credit & Debit Transactions Matters
When it comes to card transactions, consumers have plenty of reasons to care whether they’re using a debit or credit card.
As we mentioned, the money will be taken out of their accounts at different times after using their card. Other than that, the dispute process for a debit card is usually more painful. With a debit charge, the money has already been taken out of the account, and the consumer protection laws require the consumer to be more vigilant about fraudulent charges.
Merchants will notice the difference between a credit and debit card because the transactions carry different costs. They also need to invest in a point-of-sale terminal with a PIN pad, since that’s the only way that true debit charges can be processed. When it comes to larger ticket items, a true debit charge may cost less to process than a credit charge.
Of course, the important thing for a merchant is to provide a smooth purchasing experience. This includes an easy checkout, which translates to being able to process any form of payment convenient to the customer. In other words, most merchants will deal with the differences in the cost of processing debit and credit transactions in order to keep their customers satisfied.