There are some pretty significant differences between credit cards and debit cards, but when you’re the one using them it’s mostly a matter of long-term planning. Do I have enough money in my checking account? Can I pay off my credit balance this month if I add this transaction to it? What sort of rewards or discounts can I get from using a specific credit card?
However, the difference between credit and debit is a much more immediate issue for the merchant. With a debit card transaction, the money is withdrawn directly from the customer’s account and the whole thing is typically over and done with within a business day. Because of this, the companies which sponsor the cards only ask for a flat fee which doesn’t change no matter how big or small the transaction is. Much like the payment processing service which allows merchants to accept cards in the first place, the credit service is only acting as a middleman.
On the other hand, these companies are very much involved in credit transactions. The risk may be large or small depending on the customer in question, but there’s always an outside chance that a credit balance won’t be repaid, and so they represent this risk with a percentage fee which goes up and down depending on the transaction size. As a result, a large purchase paid with a credit card is always going to cost the merchant more money than a large purchase made with debit.
Still, that’s no reason to refuse credit cards categorically and only accept cash or debit. In the first place, credit cards are still incredibly popular. Consumers often put that deferred payment schedule to good use, and many credit cards come with discounts and other perks in order to encourage people to use their card instead of one of the hundreds of alternatives. As such, cutting credit out of the loop will keep a lot of customers from buying anything. In addition, a merchant who operates on many small transactions may be able to save money with credit cards.
As such, the best bet for a merchant who wants to encourage debit card use is to offer some perks and rewards of their own. This could mean a special discount or rewards program customers only get by using a debit card, or coupons handed out at the checkout counter only after debit transactions.
Debit versus credit may be a long-term decision for the customer, but the merchant sees the consequences of this choice straight away. If you’re in the business of accepting plastic and you see debit as a better alternative to credit, take a page from the credit card companies and consider rewarding customers for making the right (for you) choice.
Posted in Payment Processing on Jul 19, 2016