Do banks make a lot more from debit card vs credit card transactions?

Factual Questions
1

I’ve notice lately that my banks are offering all sorts of incentives to get me to use my debit card to make purchases.

When I use the banks’ bill pay services they get the advantage of the float on my non-electronic transfer payments, but what’s the advantage to them of debit card transactions where I assume the transfer is immediate?

Are the service fees from this significantly higher than credit card fees? Or is this simply to keep all of their customers’ transactions running through the bank?

2

Are they trying to get you to use your debit card rather than a credit card of to use your debit card rather than paper cheques?

Paper cheques are on the way out and the banks would be happy to see that process accelerated.

3

Banks probably make more money on credit card transactions rather than debit, since my bank’s debit card rewards program requires you to make purchases with it as a credit card to earn points. If you select “debit” on the swipe machine and enter your PIN instead of using a signature, you won’t earn reward points.

4

In Canada, at least, banks make a lot more on credit cards, as these are charged a percentage plus a flat fee. Debit cards travel on a different network, Interac, and are charged a flat fee only.

5

I can tell you banks make much more on credit cards than debit cards.

So why the push? Because with a debit card you can only spend what you have? (Well more or less).

Banks don’t WANT to give you credit these days. But they want you to spend.

If you pay cash the banks makes nothing. If you pay credit the bank makes more, but then you owe them, which isn’t a good thing.

This way using a debit, the bank makes a bit of money on the fee and you are spending your money not the banks

6

The merchant wants you to punch in your pin because the merchant pays a lot less in fees when you do.

7

The merchant pays more with the credit card use than with a debit/PIN. Credit card fees to the merchant are flat fee plus a couple percent of the price, wheras debits are only a flat fee of about the same amount.

So if the same entity gave you both a credit card and debit card, they’d probably prefer you to use the credit card (more fees for them). But most likely the retail bank where you have your checking account (i.e. the bank that gave you a ATM/debit card) is probably not the large bank that gave you a credit card. So your retail bank obviously would rather you use (their) debit card than (someone else’s) credit card. Hence the push to use the debit card from your bank.

8

I suspect your bank is trying to wean its customers off cheques. It may not be targeting you personally, but the overall mass of its customer base.

The USA, like the UK, France and Ireland, still uses a lot of cheques. Most other countries see them as an incredibly old-fashioned way of transferring money - like using a quill pen to write. If cheques did not already exist, and if you tried to popularise them as a way of moving money, people would wet themselves laughing at you.

In parts of Scandinavia, some bank branches do not even see one in a day. It’s all done by cards, electronic payments and e-banking, with a small amount of cash.

When you issue a cheque, a piece of paper is written out and that paper often does a lot of travelling. It may be posted to the payee. To get the money, the payee has to physically haul it to a bank and either lodge it or ask to have it paid. That bank may have to send it to another bank to get payment. Then it has to be stored at great expense in case it’s needed to prove who got paid.

Sometimes the cheque is not paid because the person who issued it did not have enough money or was a fraudster. So, it’s never a safe method of being paid. Banks will not allow you to draw against it until they are certain that value is received.

In countries where they are still popular, they cost each economy billions in wasted economic effort each year. And banks usually lose money on handling them, because of the heavy manual cost of hauling bundles of paper around.

So, to answer the original query, they probably want you to shift your expenditure to cash or cards. They would prefer you to use a credit card, as they can make fees from the merchant, and probably earn some interest from you. However, they would still be happy if customers move from cheques to debit cards.

9

I differ from most of the posters – I daresay that paper checks have been displaced as much as they’re going to be for the near future, as far as purchases are concerned. I suspect what banks are trying to get rid of is cash. Cash, to a bank, is a useless, expensive, obsolete form of money. Debit cards are cheap to administer, once you’ve installed the infrastructure, and they provide the bank with an entirely new asset – information. Every transaction is trackable, and every merchant, and sometimes individual items, can be classified for the purpose of directed advertising, the sale of which can be a hell of a lot more lucrative than the penny-ante fees generated by accounts and transactions.

10

I always assume banks want you to use your debit card so you have a better chance of accidentally over-drafting and they can collect some fat fees.

11

Oops, for clarity, maybe I should have said cheque in English is the same as check in USAian. But I guess you knew what I meant.

It may be correct that they were also targeting cash use. Again, the Scandinavian countries use far less cash than the USA, UK and Ireland. Of course they need some cash for small purchases, but they rarely pay a large amount in cash. It’s all done by transfers between accounts, usually by e-banking - and billing is usually online too.

Less cash and no cheques is the future of banking, as people move online, and particuarly on-phone. If your bank is not pushing you there, you may need to re-examine your bank.

12

I find it hard to believe that advertisers/sellers would be willing to pay a lot more than the penny ante fees. Do you know what advertisers/sellers are buying these lists for?

Many years ago when my family was in small retail, bank issued credit card fees charged to the merchant were in the order of 2.5% to 4% of the transaction. (I recall American Express was in the 6% range!).

So unless the transaction fees have declined significantly over the years, I doubt that the transactional data you’re talking about could be worth as much as transaction fees.

Does anyone know the fees charged to merchants today for debit card versus credit card transactions?

13

I just looked at my merchant statement and it’s 2.290% for regular & business cards, and 1.840% for debit cards. This is debit cards used as credit cards, tho - we don’t accept PINs (it’s online only, no terminal).

Those are just per transaction.

There are more fees listed on my statement, but they are not based on the type of card only the brand of card.

14

My debit card has the mastercard logo. I can use it either way. As a debit card, I have to put in my pin. As a credit card, I have to sign it.

15

ZipperJJ - maybe you’re the wrong person to ask since you don’t accept PINs, but aside from requiring a PIN to function as a debit card, what’s the difference between a debit card used as a credit card and one used with a PIN.

Does the card actually carry two account numbers? My bank card (CitiBank) has a MasterCard logo but I’ve never tried to use it as a credit card. If I did would it still take funds directly out of my checking account or run it through a MasterCard account, which I don’t recall ever opening. If it’s just going to run against my checking account, what’s the purpose of asking for a PIN in a credit card type situation?

16

I actually have no idea. I don’t even have a debit card myself.

I think it’s been explained here before, hopefully someone will come enlighten us.

17

AFAIK, there is no merchant’s fee for a POS online debit card transaction, but I could be wrong. Yes, the credit card fees are more lucrative than anything else, which is why the bank wants its customers to use credit cards first, but is almost as happy with offline debit card transactions (for which they can charge the merchant). The issue is “What is the debit card replacing, that the bank is so eager?” The answer is “cash.” The bank gets almost no income from handling cash, and considerable expense. (When I said “penny ante fees from accounts and transactions,” I was referring to bank accounts and bank transactions – card transactions are what they’re trying to encourage). Even if the bank is not charging transaction fees for debit card purchases, they’re making serious coin from the demographic information – there’s a LOT more to it than mailing lists (I actually think the bank doesn’t directly share the customer information; again, I could be wrong).

18

A MasterCard logo’d debit card gives you access to the same signature-based network system as a regular MasterCard, but you only have a MasterCard credit account if you have a credit agreement with your bank. When you sign a credit slip for your debit card, the money is deducted from your account a few days later (it might be deducted from your available balance immediately, but it will be pending until it’s confirmed).

MasterCard and Visa do not themselves issue cards, lend money, or any of that stuff. They just own the brand, run the network, process transactions, and sell crap with logos to banks.

19

Apparently this is harder than I would expect but my understanding, based only on what I have read, is that debit earn the bank more than credit. Perhaps because the losses are less? I seem to remember that in Australia, and this situation is supposed to mirror the US, debit fees were higher and the losses lower. It seems that when debit cards were first introduced they were viewed as new and untried and the banks succeeded in getting higher fees attached to them. They apparently still have those fees.

I believe the net profit from debits are higher, but I don’t have a cite.
I never use them so I have no first-hand experience. Back when they first came out the banks weren’t legally required to reverse a charge like they have to with a credit card. The banks all say they will, to encourage use, but I didn’t trust them. Since the banks apparently all honor reversing a charge on a debit, I suspect they got it written into the law just to encourage people like me. Didn’t work. I still write paper checks and only use a credit card. Works for me.
I am also treasurer for a couple of large volunteer organizations and checks are pretty much the only way we ever get money from our members.