Debit Cards vs Credit Cards: How Does Payment Processing Differ?

Payment Processing

As a business owner, you understand the importance of being able to accept both credit cards and debit cards. Gone are the days of exchanging denominations of cash, providing change to customers, or accepting paper checks and making runs to the bank. The reality is that most consumers want to purchase their goods and services with plastic, whether online or in person.

Credit and debit cards have simplified spending and money management for many people. Sure, credit can get out of control if someone isn’t monitoring their spending practices, but their bank statements and mobile banking app provides them up-to-date information on account balances and limits, as well as has safety measures built-in. These account features are beneficial to any individual, and if a business incorporates debit or credit card processing on their end, they too should be making use of their merchant account benefits and going about it in whatever makes the most sense for them.

You likely already make use of a payment processing system of some kind, whether you are a low or high-risk business. After all, many businesses are set up for multiple forms of payment processing. If you haven’t looked into the details, or are perhaps thinking of updating your payment processing partner to increase your efficiency and lower your transaction fees, then you should familiarize yourself with how debit card processing differs from credit card processing. 

Start With the Basics

On a basic level, credit cards and debit cards are different. While this notion might sound obvious, or even redundant, it is important to start here. Acknowledging up front that these two types of plastic currency vehicles (and the accounts they are affiliated with) are different leads to the rational conclusion that processing their payments would also be different. 

Credit cards provide funds that are borrowed from a bank or a financial institution. Debit cards, on the other hand, represent funds that belong to the spender. For the customer, this difference is a matter of personal preference, since ultimately the choice largely comes down to whether or not they have the money in their account or not. 

The similarities between credit card and debit card use are pretty comparable at the point of sale. It takes about the same amount of time for the transaction to be processed, and both types of purchases will be accepted or declined almost instantly. Additionally, both credit cards and debit cards can be used to purchase items online.

However, from a business perspective, the difference between credit card processing and debit card processing is a bit more involved.

Know the Differences Between Debit and Credit Card Processing

Customer handing cashier a credit card.

When processing a credit card, information about the transaction is routed to the consumer’s credit card network, such as Visa, Mastercard, etc. The affiliated network, upon receiving the details of the transaction, will either approve or deny the sale. While there is a great deal of information that travels back and forth, this entire process takes only a matter of seconds. 

A similar process occurs when processing a debit card transaction, but in this instance, the affiliated bank or financial institution will withdraw the funds from the account. If the funds are not available, then the transaction will be immediately denied. While some consumers prefer credit cards for this reason, as it provides them a bit more flexibility, there is less risk involved in a debit card transaction since the funds have to be available for the transaction to occur. 

However, the fees are not the same for debit card processing and credit card processing. For merchants, debit card processing fees often cost more than credit card processing fees. It is also worth noting that there are even some payment processors who charge a higher fee for charges that are under a certain dollar amount. 

Work With a Payment Processing Partner

There are many payment processing providers out there, but it is important to find one that will treat your business as its own, and not lump it into a larger category and apply the same fees and stipulations. For instance, if you are a high-risk merchant, then you are subject to higher rates, chargeback fees, tiered pricing, or a whole list of other challenges. 

This is why partnering with a payment processing provider who wants to know you and your business is important. Let’s face it, you have to be in a position where you can accept debit and credit card processing if you want to be competitive in this business world. And because of this, you need to have the right payment processing partner on your side.

Understand the Alternatives

While the option to process debit or credit cards should be on the table, it doesn’t mean that all of your business has to transact through these mediums. For instance, ACH payment processing can be beneficial if you have customers who make recurring payments. ACH payments have lower fees than credit or debit card processing, and are fast and efficient, moving funds directly from one account to another. This solution doesn’t only have to be dedicated to recurring payments, but anytime a customer wants to have the funds sent directly from their account to yours.

While there is no question that debit and credit cards are the most popular form of spending out there, having options on your side can give you the leverage you need to save where you can and operate as financially sound as you are able.

We understand that choosing the right payment processor for your high-risk business is a big decision. That’s why we’re standing by to answer any questions you have about our merchant gateway solutions.