Debit Card Processing Tips

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Should I use split or blended pricing for card transactions?

What do I need to know about offering cash-back service in a retail environment?

What are some considerations when contemplating using "smart cards" for a customer loyalty program?

Can I avoid paying discount rates on my customers' purchases?

What is DUKPT?

What do I need to process online debit card transactions?

What are some of my options for equipment needed to accept debit cards?

What can retailers do to improve the security of credit and debit card transactions?

Should I charge customers for providing cash back?

What do I need to know about transaction fees for debit card transactions?



Should I use split or blended pricing for card transactions?
Another factor to consider in pricing credit card merchant accounts is whether your provider blends credit-card and debit-card charges under one fee structure, or splits them into separate categories with separate fees. While it may seem convenient to have just one set of fees, debit cards are considerably less risky for merchant account providers. Thus a retailer may benefit from billing debit cards separately with lower transaction fees. On the other hand, an online retailer, who must bill all cards as if they were credit cards, will prefer a blended setup.

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What do I need to know about offering cash-back service in a retail environment?
Besides providing a convenient service for customers, cash-back can cut down on the retailer's risks and expenses of transmitting large amounts of cash in physical form. Indeed, the cash-back model was first used at grocery stores as a way to cut down on cash-handling costs. The primary reason to offer cash-back, though, is to attract customers. By adding the convenience of withdrawing cash from customers' debit card accounts, retailers can increase footfall and, often, sales. If you're considering offering this service, you'll need to be sure your point-of-sale terminal and software support it, and that your cash flow is sufficient to meet customer demand on such occasions as holiday weekends. You'll also want to be sure your debit card processor allows you to offer cash back.

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What are some considerations when contemplating using "smart cards" for a customer loyalty program?
Chances are good that you have a card in your wallet right now from a company's customer loyalty program. Maybe it's a discount card for your supermarket. Maybe it's a frequent-flier card for an airline. What if your business could implement the same kind of program to reward frequent customers? Perhaps it can. "Smart cards," combined with the appropriate terminal and software, can record customer purchases to win discounts or accumulate points toward a reward. In addition, you can use the information gained from these cards to track customer spending habits and better serve your target market. Important considerations with a loyalty program include:

  • What information do I hope to gain from this program?
  • How will I market the card and persuade customers to sign up?
  • What rewards will I offer for using the card?
  • Should I try to conduct a loyalty program on my own, or get together with other businesses for a group program?
  • Will the cost in time and money reap me a sufficient gain?
  • Do I need to invest in a new debit card processing system to handle loyalty cards?

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Can I avoid paying discount rates on my customers' purchases?
"Discount rates" are the fees paid to the provider of a retailer's merchant account. They are deducted from the merchant's receipts before money received from credit and debit card charges is deposited to the merchant's account. Fees can also be deducted at the end of the month if needed and if the business model meets certain criteria. The discount rate depends on the type of transaction, the retailer's sales volume, and the merchant bank's terms of service. Some credit card merchant account providers charge only a flat debit card fee on PIN-based purchases, with no discount rate. Then they might charge a fee plus a percentage (discount) on credit-card (signature-based) transactions. This is why some retailers aggressively encourage customers to use debit rather than credit cards -- it's cheaper for them. One reason merchant account providers charge less for debit-card transactions is that they have a much lower rate of chargebacks, thanks to the security and immediacy of debit-card purchasing.

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What is DUKPT?
How do you know that typing your secret number into a retailer's PINpad is secure? The answer is DUKPT encryption, a clunky name for a very helpful technology. The initials stand for Derived Unique Key Per Transaction, and they mean that each transaction is transmitted in a separate code. Even if a hacker managed to intercept the transmission, figure out the code and find one person's PIN, that wouldn't expose any other customer data. Developed by Visa, this has become a standard for point-of-sale data transmissions such as debit card payments.

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What do I need to process online debit card transactions?
A merchant can accept debit card charges in one of two ways: online or offline. An online debit card transaction requires a customer to enter a personal identification number (PIN); an offline one requires a signature. Increasingly, retailers are moving to online transactions. Online debit card transactions are fast, secure and convenient. The use of PINs helps reduce the chance of chargebacks, the money is captured from the customer's account immediately, and many customers say they appreciate the faster checkout times. Unfortunately, current retail technology does not yet provide a secure solution for accepting PIN-based debit card charges via the Internet. So "online" charges can only be accepted at "offline" retailers! To accept PIN-based charges, you'll need a terminal, a receipt printer and PIN pad at each checkout location. There are several different ways to configure this gear. For instance, Verifone offers a separate PINpad that plugs into your terminal but can be handed to the customer, allowing greater privacy for PIN entry. The same company offers a single-unit terminal, receipt printer and PIN entry pad in a small countertop unit. The choice is up to you, based on your space configuration but also on your customer base. For instance, some retailers may find it important to have PIN pads with large numbers for the convenience of elderly customers, while others may find ruggedness important when dealing with customers who are likely to be carrying inquisitive toddlers.

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What are some of my options for equipment needed to accept debit cards?
Depending on the physical space you use for your sales, you may choose to have an integrated card-processing unit such as the Verifone Omni or a separate PIN entry tool such as the Verifone PINpad. An integrated unit includes the terminal, printer and PIN entry pad in one small device, which can be turned toward the customer for PIN entry. PINpads and similar tools plug into your point-of-sale terminal on a flexible cord, and can be handed to the customer for greater privacy in PIN entry. Whatever solution you choose, be sure it is rugged and reliable, and pay attention to how easy it is to use. A simple, intuitive interface can go a long way toward reducing chargebacks due to clerks' errors. Also pay attention to the cost of consumables when choosing a debit card processing solution. Thermal paper costs more than the ordinary kind, for example, but ink is also a consideration.

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What can retailers do to improve the security of credit and debit card transactions?
LinkPoint, the secure payment gateway used by Ignite Payments and other respected merchant account providers, offers a variety of features designed to keep credit and debit card transactions safe without sacrificing checkout speed. Among the Linkpoint security features:

  • Secure encryption technology
  • Card verification
  • Card validation
  • Robust Web-based reports to allow retailers to carefully track orders
In addition, there are several things retailers can do to ensure security of their credit card systems:
  • Conduct background checks on employees who will be handling customers' confidential data.
  • Take steps to ensure that customers can enter their PINs into your system without being observed by others. (Try setting up a barrier and requiring customers to line up a few feet away from the point of sale, with only the purchasing customer allowed at the register.)
  • Keep confidential customer records in a secure cabinet that can be unlocked only by trusted employees.
  • Take steps to secure customer data stored in your computer system. Disable USB ports, which would allow a dishonest employee to easily transfer this data to a tiny portable hard drive.
  • Use a shredder when disposing of confidential customer records.

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Should I charge customers for providing cash back?
Depending on your needs and your customer base, you may decide that your retail establishment should assess a surcharge for providing cash back to a customer. This is appropriate if the cash-back service is a convenience to existing customers rather than a way to lure new ones, or if providing the service is time-consuming for your staff. It can also be a useful source of revenue if your location lacks other options for people to get cash. Avoid surcharges if they will simply drive customers to other locations where they can get cash back for free. Surcharges for cash back are a common feature in up-to-date debit card processing terminals.

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What do I need to know about transaction fees for debit card transactions?
Transaction fees for credit and debit card sales are a large and growing percentage of the costs of most retail organizations. The American Bankers Association reported that 2003 was the first year in which U.S. consumers made more in-store payments with plastic than with checks or cash, with credit and debit cards accounting for 52 percent of all sales. The National Association of Convenience Stores points out that with razor-thin profit margins in the field of gasoline sales, the credit-card company often makes more on a gallon of gas than the retailer does. Obviously, transaction fees are an important consideration when considering which debit card processor will handle transactions from your business. Often, the fees are lower for debit-card transactions (PIN-based) than for traditional signature-based credit card sales. Questions to ask include:

  • Does the processor charge a set fee per transaction or a percentage of sales?
  • Are fees lower for debit card sales?
  • Does the processor offer a verification service (checking the customer against a database of known bad-check writers)?

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Services by Ignite Payments.

The Ignite Payments name, trademark and logo are owned by Ignite Payments Corporation. All other trademarks, service marks and trade names referenced in this material are the property of their respective owners. The Ignite Payments Agent Program is operated by Ignite Payments International, Inc. Ignite Payments International, doing business as Ignite Payments, is a registered ISO/MSP of Wells Fargo Bank, N.A., Walnut Creek, CA. American Express requires separate approval. Ignite Payments Ventura County is an independent agent for Ignite Payments International.
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