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Is PIN-debit cheaper than credit?

Yes, debit cards are typically cheaper than credit cards. There are exceptions to this rule - small transactions can be more expensive, but by and large, PIN-debit is a cheaper alternative to credit.

PIN debit transactions are processed through different networks, and will usually cost less for merchants to process. Because PIN-debit transactions are deducted from your customer's bank in real time, there is less potential for a defaulted payment. In addition, due to the additional security of requiring a PIN number, it is more challenging for customers to dispute PIN-debit transactions with their  issuing bank. Plus - customers don't get "rewards" for using their debit card like they do with a credit card. Basically, their banks pay less for debit transactions. As such, the underlying interchange rates are lower, and merchants end up paying less.

There is a second layer to debit card processing - and that's with the advent of the Durbin Amendment, passed by congress in 2007. This law, passed in the wake of the financial crisis, capped the interchange rates for debit cards issued by large banks. This applied to both PIN-debit and signature-debit. The interchange rates are capped at 0.05% + 22¢ per transaction. This structure (low percentage, high transaction fee) lends debit cards to be very cheap for large-volume transactions, but they can start to get much more expensive for sales that are under $10. Consider that a 22¢ transaction fee encapsulates 4.4% of a $5 sale! And that's the bare minimum cost that a merchant would pay - there are also network/switch costs, and the costs to your provider. As such, PIN-debit should be discouraged for merchants operating in a very low average-ticket environment.

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