Merchant Account

• The ability for a business to process debit cards begins with a merchant account. Merchant accounts allow a business to accept and get paid for debit card purchases. In its credit card manual, the Federal Deposit Insurance Corporation says merchant accounts usually come with four different fees: the discount rate, interchange fees, processing fees and ISO/MSP fees. The discount rate is a percentage of each transaction that the merchant pays to its bank. The interchange fee is a fixed rate paid by the merchants bank to the debit card holder's bank. It is often included in the discount rate. Processing fees and ISO/MSP fees cover transaction costs for the merchant bank.
  
  

Process

• When a consumer swipes her debit card, the purchase amount, card number and merchant ID are forwarded to a payment brand, like Visa or MasterCard, who verify the information with the card holder's bank. The bank verifies that the purchase can be made and sends the approval decision back to Visa or MasterCard, who sends it back to the merchant. When the merchant batches all his payment activity and sends it to the payment brand, the money is transferred from the card holder's bank account to the merchant's bank.
  
  

PIN Transactions

• A merchant pays different fees depending on whether a customer enters his PIN. When a customer chooses the "debit" option with his debit card, it's considered a non-signature transaction. When she chooses "credit" and no PIN is entered, it's considered a signature-based transaction. According to MSNBC's Bob Sullivan in 2007 "stores pay about 20 cents for PIN-based transactions on a $100 purchase, but $1.48 if the transaction is signature-based."
  
  

Different Types

• Other factors influence how much a merchant must pay to accept debit card payments. For instance, transactions can also be classified as card-present and card-not-present. Card-not-present transactions are done online or over the phone and are considered riskier since card holder data cannot be verified immediately. For example, in October 2010, Visa charged online retailers an interchange rate of 1.87 percent versus a rate of 0.90 percent for all other forms of debit card payment. (source 4)