One of the biggest challenges I see our grocery store and convenience store clients facing is figuring out how to control costs. Margins are razor-thin in your industry — you can’t raise prices and expect to compete. So, to hang onto what little profit you have, you need to keep operating expenses low. Some costs that can catch you by surprise are interchange fees for debit card transactions. Debit cards are now the second most popular form of payment in the United States behind credit cards and ahead of cash. What you may not realize is that not all debit card transactions are processed in the same way. There can be a big difference in fees for accepting Visa Debit vs. US Debit.
Visa Debit vs. US Debit Differences
Take a look at the differences in how debit cards can be processed:
Dual-message networks: Debit cards can be processed over credit card networks, e.g., Visa Debit, sometimes called dual-message networks because they perform two operations. The first is to request authorization, and the second is to request settlement for the transaction. In this type of transaction, the money is “borrowed” from the credit card network and then settled from the customer’s bank account.
Single-message networks: Other debit card transactions, US Debit, are processed by the same networks that banks use to process ATM transactions, such as STAR, ACCEL, NYCE, and SHAZAM. The transaction is routed to the card-issuing bank and money is drawn from the customer’s account.
Visa Debit vs. US Debit Costs
Whenever you process an electronic payment, you pay interchange fees. Interchange fees vary depending on your industry — grocery stores pay different rates than, for example, auto dealerships.
Interchange fees also depend on the size of the bank that issued the debit card — some transactions are “covered” and some are “exempt.” Small issuing banks (with less than $10 billion in assets) are exempt from interchange standards, which, according to the Durbin Amendment, puts a limit on the interchange fees they can charge. Covered transactions are limited to 21 cents plus 0.05 percent of the transaction, and in some cases, a 1-cent fraud prevention adjustment.
The Board of Governors of the Federal Reserve System reports in 2018, exempt transactions can cost merchants average of 54 cents per transaction on dual-message networks and 25 cents on single message networks.
There’s never an easy way to figure out exactly how much you’ll pay in fees since it depends on your average ticket size, how many transactions you process, and the customer’s banks. But, here is an easy math problem to show how much of a difference Visa Debit vs .US Debit processing can cost you:
- A small grocery store processes $50,000 in debit card charges each month: 500 transactions of $100 transactions each.
- All customers are using cards from banks that are exempt from the interchange fee cap.
- If you processed them through Visa Debit transactions at the average fee of 54 cents per transaction, the interchange fees would be $270.
- If you processed them through US Debit transactions at the average fee of 25 cents per transaction, the interchange fees would be $125.
That’s a difference of $145 per month or $1,740 per year. And it’s money you could save.
What Do You Have to Lose?
To give your business the best chance to thrive and grow, you need to make sure you are using the right strategy for accepting debit cards — and credit cards — to minimize your rates.
If you aren’t sure where you stand with debit card processing, I’m always ready to talk though this with you and help you figure out if you can save your business money.