Q: Can
accepting debit cards really benefit my business? How do debit
transactions work, and what services and equipment do I need to
process them?
A:
Debit cards are a popular payment choice for both merchants and
consumers. They are commonly regarded as safer than cash, more
convenient than checks and less expensive than credit cards. And
thanks to the introduction of offline cards, debit payments are now
more prevalent than ever. According to data compiled by ATM
& Debit News, transactions made with offline debit cards
alone during the first nine months of 2001 totaled $4.8 billion, up
26.3 percent from $3.8 billion during the same period in 2000.
Consumers value their debit cards because this payment option
quickly and securely moves checking account funds without the
hassles or risks involved with paper checks. Security features such
as personal identification numbers (PINs) also protect shoppers
against theft and fraud. Perhaps most important, consumers who make
debit card purchases are free of the finance charges associated
with credit cards.
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Debit cards benefit merchants, too. Notably, a debit transaction
can only be completed if sufficient funds are available in the
customer's account, so the merchant's payment on an
authorized transaction is virtually assured. Debit acceptance also
helps merchants by boosting revenue from impulse purchases,
lowering the risk of employee theft and offering access to
customers who do not have or use credit cards. These customers
prefer debit cards because they act virtually the same as cash,
only with much more security. In addition, supermarkets offer
"cash back" on debit cards so that they can reduce the
quantity of cash on hand. Handling large quantities of cash is not
only risky due to theft, but also expensive. Someone has to count
it, lock it up, recount it, bring it to the bank, etc.
Two types of debit transaction occur: online and offline. Online
debit payments require the secure entry of a PIN at the point of
sale. It is important to note that this type of debit transaction
is only available in the physical world, as no operating standards
have yet been established for securely processing PINs over the
Internet. However, new industry initiatives are expected to advance
the development of PIN-based debit programs for the Web.
A shopper can initiate an online debit payment in a
brick-and-mortar store by swiping his or her debit card through a
magnetic card reader. The customer must then key his or her secret
code into an encryption device called a PIN pad. The transaction is
authorized in real time, funds in the customer's account are
captured immediately, and money is transferred into the store
owner's account in two to three business days. The merchant
pays a nominal transaction fee. And because the customer authorizes
payment with a PIN, the risk of a chargeback is virtually
nonexistent.
To accept online debit payments, you must have a merchant
account, debit processing service, a payment terminal, a receipt
printer and a PIN pad. Many payment processing companies offer both
credit and debit card services, but you must be approved for them
separately. You can obtain a terminal and printer with an
integrated PIN pad or purchase a discrete PIN-entry device and
connect it to your payment system--just remember that your
customers must be able access the device and enter their codes in
private.
Unlike online debit transactions, offline debit payments do not
involve PINs. Offline debit cards (also known as check cards) are
typically issued by credit card companies through their
participating banks. U.S. consumers make the majority of their
offline debit purchases with the Visa Check Card or
MasterCard's MasterMoney card. These enhanced ATM cards carry
the Visa and MasterCard logos, respectively, and may be used
everywhere the credit cards are accepted, including over the
Internet.
A customer who chooses to make an offline debit purchase in the
physical world authorizes the merchant to charge his or her
account. On the Web, the customer enters check card information
into a browser-based form, just as he or she would with a credit
card. The data is encrypted, captured by the transaction
processor's secure payment gateway, and sent to the credit card
processing networks for authorization. Transactions normally settle
in two to three business days.
Because check card transactions are processed through the same
networks as credit cards, they often incur the same discount and
transaction fees. If your business is already equipped to process
credit card transactions (i.e., you have a merchant account, credit
card processing service, and either a terminal and printer or
payment-processing software), you should also be able to process
offline debit payments. In fact, you may be accepting them now and
not even know it.
To find out how debit acceptance can benefit your business,
contact a payment service provider with experience in debit
processing. A well-established transaction processor that offers a
comprehensive line of payment products, quality customer service
and a solid fraud-protection plan can save you time and money by
offering reliable solutions as well as ongoing merchant
support.
Tim Miller is COO of Cardservice International and has
more than 15 years of experience in the credit card processing
industry.
The opinions expressed in this column are those
of the author, not of Entrepreneur.com. All answers are intended to
be general in nature, without regard to specific geographical areas
or circumstances, and should only be relied upon after consulting
an appropriate expert, such as an attorney or
accountant.