Well, that about covers it. I notice my debit cards treat credit and debit differently. For both, debits are either surcharged or left alone by the bank. But running it as credit skips the fee on one and the other offers a cash back bonus. Why? how are the 2 so different?
A debit card is issued by your bank can be used to directly transfer money from your account like an ATM card or can be used like a credit card through the issuing company. The bank wants you to use it like an ATM card so they can bypass the credit card company and keep the transaction fee. The credit card company wants you to use it like a credit card so they get the transaction fee. Depending on who wants your money more, you may get bonuses for using it certain ways. The bank my give you $.10 every time you make a debit card purchase. The credit card company might give you 1% cash back. They’re both fighting for the transaction fee from using your card.
I don’t know this for sure, but I think a debit card purchase has a fixed transaction cost like $.50. A credit card transaction fee is a percentage of the total purchase.
The bank has nothing to gain when you use a debit card. Maybe they can charge you overdraft fees but that’s iffy too because some cards won’t let you overdraw.
A credit card is different. When you buy something on credit, essentially the bank loans you money. If you forget to pay by the end of the month they charge you interest = profit for the bank.
So it makes perfect sense to discourage use of debit cards by adding a surcharge while promoting credit cards with various bonuses.
Yup, the debit charge is 50 cents. So does it come down to a pissing match between the bank and MasterCard? That would make sense.
Actually the bank makes revenue from both types of transactions. When used as a debit card, the bank makes the the debit charge that has been addressed previously.
When used as a credit card the bank is also the issuer so they make the interchange fee associated with the transaction. Depending on the merchant, this can be anywhere from less than 1% to over 10% of the txn amount.
This is why merchants will often push the debit method if they are able.
Visa/Mastercard etc. will not allow a transaction fee to a customer on purchases made with their cards. Dual-use cards used as debit have no such restrictions. A vendor would rather you use a debit card that they can charge you directly for their transaction fee than a credit card where they have to eat it themselves.
I belong to a credit union. If we use their card as a debit card, we get a $3.50 fee. If we use it as a credit card, we get no fee. What is that all about?
I don’t get charged anything to use my debit card.
Many times, when using those debit card-swipe machines, I don’t even get the option of selecting between debit or credit; it simply runs the transaction as credit automatically. And this is irrespective of the amount total of that transaction, it seems to occur randomly. Other times, I will swipe my card and be asked “Debit or Credit?” by the sales associate. 
Reread my post. If you use it as a debit then you get the fee (for some banks, others will waive the fee). If you use it as credit the merchant pays a fee (always).
Additionally, the fees are different to the merchant based on the card. If you have a card that has rewards, the merchants fee can be even higher…sometimes up to 10% of the charge. That is why we always ask if we can run a debit/credit card under debit. It saves us big bucks in the long run.
I don’t see what the credit/debit split has to do with it, seeing as you’re still technically using it as a debit card. Or at least, that’s how it worked back when I still had one. Whether I called it debit or credit, the money came from my bank account.
So what happens if it’s a debit card and it runs as a credit? How do you pay it if it’s not automatically taking it out of your account?
I run mine as a credit, but it comes straight out of my checking account. Go figure.
You’re looking at it from the consumer point of view. Switch over and look the other way.
First all merchants have different rules. VISA and MC are just processors basically. Your bank processes the cards. So Walgreens can use Bank of America to process their VISA / MC and CVS could use Citibank to process them and so on.
Debit cards are just bank cards a merchant has the option of taking a bank card or a credit card.
So you could have a merchant just take debit cards only. Or just take credit cards only. And a few do. Aldi Foods is one that takes debit only cards.
Now think of it from the merchant point of view. He says, ‘I could take debit cards only, but I lose out all those people with credit cards who don’t want to pay the fee for debit.’ Then he says, ‘I could take credit cards only but I lose all the business of those who can’t get a credit card.’
So he takes them both.
At one time there were bank debit cards only with no VISA/MC logos on it. Over the years they got combined.
This is the confusion as they’re too separate cards combined into one. Think of it as this: In Chicago they are looking into a new system that is going to let you use your credit card to ride the bus. Directly use it, no more smart cards.
Two uses, one card no connection.
You have a debit card and a credit card, but combined into one card. The connector is the VISA or MC logo.
As for fees, they vary greatly by the bank YOU chose, and the fees for the merchant vary greatly by the bank they choose to process debit and credit transactions.
Perhaps it’s because my card is a Visa check card? I don’t know…All my transactions are supposed to be automatically deducted from my checking account.
Would it matter if a company chose one as a matter of convenience? Several Carl’s Jr. around here charge for debit, but not for credit. However, you’re only made aware of this if you order inside the restaurant. However, if you go through the drive-thru and pay with a debit card, it used as credit although they don’t tell you. I assume it’s so the line doesn’t back up.
Good post, KneeSid.
And most importantly from the merchant’s standpoint – the debit processing fee is always lower than the credit processing fee. That’s why most places these days, if they accept both credit and debit cards, have PIN pads that default to debit if they detect that a debit card has been swiped through them.
So, credit purchase are usually fee-free to the consumer because the processor charges the merchant more than for a debit transaction, whereas the consumer pays directly for a debit purchase because the processor charges the merchant less.
Don’t worry about the banks; they’re getting their money somehow. And whether you hit debit or credit, you’ll end up paying for it – either directly, or as a part of the price of the products in the store.
That’s because it’s tied to your checking account. This confuses so many people every day at work (a retail store).
Three kinds of cards:
[ul][li]ATM card: Issued by your bank, and tied to your checking and savings accounts. Can be used to withdraw money at an ATM provided the ATM displays the logo for whatever networks the card supports. Flip the card over and see if you can match logos, and you can use it. Can also be used at point-of-sale for merchants that accept PIN-based cards and support the network the card is a member of, but cannot be run as a credit card at POS. If the merchant supports it, this card can be used to get cash back on a purchase at POS.[/li][li]Credit card: Issued by whatever bank you apply to for a credit card. Not tied to any asset accounts, but actually increasing your debt every time you use it. Can be used at an ATM provided you know the PIN that has been issued to it, but almost always subject to an insane cash-advance fee. Can be used at POS anywhere that takes credit cards, but cannot be used with a PIN at POS. This card is the one you get the monthly statement for and have to pay every month. This is the card that’s been around since the very first BankAmericard – now VISA. Others include MasterCard, Discover, American Express. Cannot be used to get cash back on a purchase at POS.[/li][*]Debit card: Issued by your bank and tied to your checking and savings accounts, but in addition to all the ATM network logos it may carry on the back, it will also carry either a VISA or MasterCard logo on the front. This card can be used at an ATM to withdraw money from your checking or savings account, or at POS for a purchase. If you use it at POS for a purchase, you can run it as a credit card (and sign for the purchase, unless the merchant has a no-signature contract with its processor) or as a debit card (and use your PIN). As a credit card, there is no option to get cash back, but likely a lesser fee to you (but a greater one to the merchant). As a debit card, there will be an option to get cash back, but a larger fee to you (and a smaller one to the merchant). In either instance, the money from the purchase will be taken from the account the card is tied to – as opposed to a traditional credit card, which would add the purchase amount to your outstanding balance.[/ul]
My credit union “check card” doesn’t even work if I choose “debit”; it comes back as “declined.”
It only works as “credit,” which is tricky sometimes because a lot of stores’ EFT machines default to debit and always go straight to asking for a PIN when I swipe my card. It took me a while to figure out I had to press “Enter” (without entering my PIN) to get past that screen and force it to run the transaction as “credit.”