A prospective retail merchant called me earlier in the week to ask me whether it was worth it to purchase a pin pad so that she could facilitate debit card processing.  This blog entry is dedicated to her. 

With the economy the way it is at the moment, a lot of people are wary about going into debt, or going deeper into debt.  Consequently, many people have cut up their credit cards or have hidden them away for the time being, and prefer to pay with cash.

However, you can still technically pay for items and services by cash without having to actually carry the money around with you. The simplest way is to pay by a debit card. A debit card is just as easy to use as a credit card as it can be swiped through a terminal, but the funds are taken directly out of your bank account instead of being added up on a monthly statement.

This way you can’t get carried away on a shopping spree and pay for things you can’t afford, as you need enough money in the account to cover the bill. I guess the simplest way to describe a debit card would be by calling it a plastic check, but without the aggravation of actually having to write one out. In fact, debit card processing is becoming the fastest growing method customers are using to pay for orders.

Debit cards are a lot more convenient than carrying around cash or checks and are also secure as a PIN number is needed to use the card to pay for a transaction. If you happen to lose a $100 bill, you’re out of luck, but if you misplace your debit card, it can easily be replaced and can’t be used without the proper PIN number. In addition, statements are itemized with the location and time of the debit card transaction.  Check cards are also available from companies such as Visa and MasterCard and they are similar to debit cards, but you don’t have to use a PIN number with them.

Because so many shoppers are using debit cards to pay for purchases, it goes without saying that businesses should be equipped to handle debit card processing. By accepting debit cards with a PIN pad, you can also save quite a bit of money on processing costs.. 

If you process debit/check cards as a regular credit card transaction you may end up paying twice the amount for processing. If you use a PIN pad for debit card processing, you only pay a per-transaction-fee and no discount rate of any kind.

But you need to make sure your customers input their PIN number during the transaction, if not, the per-transaction and discount rate will be charged for people using check cards who don’t enter their PIN numbers. Since entering a PIN number with a check card is optional for shoppers, it’s a good idea to encourage them to do so.  

If you run your business over the Internet, you typically have to pay the same fees for debit card processing as you do with credit card processing.  (Some merchant account providers provide a discount for the online use of debit cards.)  However, you can also save money by using an electronic checks system for your website sales.

Because the costs are so low using the debit card processing method using a PIN pad, (usually 50-95 cents) per transaction, you can save a substantial amount of money per order.

There are also several other benefits to using debit card processing, including the following: 1) There are no charge backs; 2) You have the option to offer cash-back to customers; 3) Your revenues will increase; 4) Sales are deposited into your account quickly; 5) All transactions appear on your statements; and 6) There’s no risk of accepting a bad check.

While it’s easy to see that using a PIN pad will save you money in debit card processing, you need to decide whether to use an internal or external pad. An internal pad is ideal if you want an all-in-one unit and it will also save you space. With an external PIN pad, it’s usually easier for the customer to access and enter their number on a hand held unit and there’s less strain put on electrical cables.

If you’d like to make money and save money at the same time, set up a system where you can accept pin-based debit cards.  The only caveat is if your average ticket is less than about $20-30.  In that scenario, the average credit card processing rate should be less than the flat debit card processing rate.

Retail merchants with higher tickets would be pennywise to employ debit card processing.