Offering Debit Payment Options

Make it easy for customers to pay you by providing debit transaction access.

Q: Canaccepting debit cards really benefit my business? How do debittransactions work, and what services and equipment do I need toprocess them?

A:Debit cards are a popular payment choice for both merchants andconsumers. They are commonly regarded as safer than cash, moreconvenient than checks and less expensive than credit cards. Andthanks to the introduction of offline cards, debit payments are nowmore prevalent than ever. According to data compiled by ATM& Debit News, transactions made with offline debit cardsalone during the first nine months of 2001 totaled $4.8 billion, up26.3 percent from $3.8 billion during the same period in 2000.

Consumers value their debit cards because this payment optionquickly and securely moves checking account funds without thehassles or risks involved with paper checks. Security features suchas personal identification numbers (PINs) also protect shoppersagainst theft and fraud. Perhaps most important, consumers who makedebit card purchases are free of the finance charges associatedwith credit cards.

Debit cards benefit merchants, too. Notably, a debit transactioncan only be completed if sufficient funds are available in thecustomer's account, so the merchant's payment on anauthorized transaction is virtually assured. Debit acceptance alsohelps merchants by boosting revenue from impulse purchases,lowering the risk of employee theft and offering access tocustomers who do not have or use credit cards. These customersprefer 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 thequantity of cash on hand. Handling large quantities of cash is notonly risky due to theft, but also expensive. Someone has to countit, lock it up, recount it, bring it to the bank, etc.

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Two types of debit transaction occur: online and offline. Onlinedebit payments require the secure entry of a PIN at the point ofsale. It is important to note that this type of debit transactionis only available in the physical world, as no operating standardshave yet been established for securely processing PINs over theInternet. However, new industry initiatives are expected to advancethe development of PIN-based debit programs for the Web.

A shopper can initiate an online debit payment in abrick-and-mortar store by swiping his or her debit card through amagnetic card reader. The customer must then key his or her secretcode into an encryption device called a PIN pad. The transaction isauthorized in real time, funds in the customer's account arecaptured immediately, and money is transferred into the storeowner's account in two to three business days. The merchantpays a nominal transaction fee. And because the customer authorizespayment with a PIN, the risk of a chargeback is virtuallynonexistent.

To accept online debit payments, you must have a merchantaccount, debit processing service, a payment terminal, a receiptprinter and a PIN pad. Many payment processing companies offer bothcredit and debit card services, but you must be approved for themseparately. You can obtain a terminal and printer with anintegrated PIN pad or purchase a discrete PIN-entry device andconnect it to your payment system--just remember that yourcustomers must be able access the device and enter their codes inprivate.

Unlike online debit transactions, offline debit payments do notinvolve PINs. Offline debit cards (also known as check cards) aretypically issued by credit card companies through theirparticipating banks. U.S. consumers make the majority of theiroffline debit purchases with the Visa Check Card orMasterCard's MasterMoney card. These enhanced ATM cards carrythe Visa and MasterCard logos, respectively, and may be usedeverywhere the credit cards are accepted, including over theInternet.

A customer who chooses to make an offline debit purchase in thephysical world authorizes the merchant to charge his or heraccount. On the Web, the customer enters check card informationinto a browser-based form, just as he or she would with a creditcard. The data is encrypted, captured by the transactionprocessor's secure payment gateway, and sent to the credit cardprocessing networks for authorization. Transactions normally settlein two to three business days.

Because check card transactions are processed through the samenetworks as credit cards, they often incur the same discount andtransaction fees. If your business is already equipped to processcredit card transactions (i.e., you have a merchant account, creditcard processing service, and either a terminal and printer orpayment-processing software), you should also be able to processoffline debit payments. In fact, you may be accepting them now andnot even know it.

To find out how debit acceptance can benefit your business,contact a payment service provider with experience in debitprocessing. A well-established transaction processor that offers acomprehensive line of payment products, quality customer serviceand a solid fraud-protection plan can save you time and money byoffering reliable solutions as well as ongoing merchantsupport.

Tim Miller is COO of Cardservice International and hasmore than 15 years of experience in the credit card processingindustry.

The opinions expressed in this column are thoseof the author, not of All answers are intended tobe general in nature, without regard to specific geographical areasor circumstances, and should only be relied upon after consultingan appropriate expert, such as an attorney oraccountant.

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