Stephen Sprunk <stephen@sprunk.org> opined:
>> From: Jay Ashworth <jra@baylink.com>
>>
>> Even Further Off-Topic, isn't "debit" supposed to be "cash"? Why do
>> I pay the Credit price for it?
>
> It is, and *ISN'T*, 'cash'.
>
> Unlike cash (and like a credit card), it is simply an instruction to a
> third party to pay the retailer a specified amount. And as such, is
> subject to the terms of the contract between -those- parties as to how
> payment is made an what charges are imposed.
>
> Unlike a credit card, the money _is_ immediately dedecuted from your
> bank account.
All of the above is completely irrelevant to the merchant.
False to fact.
The fact that it is an order for (deferred) third-party payment, vs 'cash
in hand', is *very* relevant to the merchant.
For starters, the purchase amount becomes a 'debt' owed to the merchant by
the third party. There are massive legal ramifications to that distinction
alone.
> Like a credit card, it is the third-party clearinghouse that gets the
> mone from you, and passes it on to the retailer. AFTER extracting their
> charges for the service they provide.
FWIW, this is known as the "discount" rate.
"Not exactly".
There are typically three components to the total charge that the merchant
pays on a given transaction. One is a charge based on a percentage of
the transaction amount -- that _percentage_ figure is known as the discount
rate, distinct from the dollar-amount deducted for that purpose. Over and
above the 'percentage' amount, there are 'per transaction' charges - which
are essentially independant of the size of the transation. On 'small'
transactions, the 'per transaction' charges tend to swamp the 'percntage'
charge.
> You pay the 'credit' price, because the card issuer, and the clearinghouse
> operations _charge_ the merchant the same amount for those transactions
> as for 'credit' ones. Thus the merchant does not receive any of the
> benefits of a 'cash' transaction, so there is no 'discount' to pass on to
> the buyer.
The merchant's discount rate varies between card types. That's why many
merchants don't accept AmEx, DC, CB and Nexus: their discount rates are
higher than Visa and MC. For a low-margin business, the difference in
rates can make the difference between profit and loss on a given sale.
> At one point, VISA, charged -more- for debit transactions than credit
> ones. Despite the fact that there was -zero- risk to them on the debit
> transaction.
Wrong. Even debit cards present a risk of chargeback due to fraud.
*SNICKER*
According to the law, 'debit' cards (processed through the CC network) do
-not- have any of the protections with regard to limit-of-liability that
credit cards do. The account owner can assert 'fraud', but VISA is _not_
required to refund them any of the monies involved. For the 'debit' type
transaction, VISA has the money in hand -before- they pay out to the merchant,
the risk of them not getting the money is zero. Legally, the risk of having
to return the money after an allegation of fraud is also zero, given that
the merchant has followed the letter of the contract in processing the card.
And, if the merchant has not don so, then VISA charges back the full amount
to the merchant -- with the net risk to VISA being zero.
The other kind of 'debit' items -- ATM transactions do not involve VISA at
all, only the issuing bank. For these, With the proper PIN presented,
'fraud' charges are (sometimes) eaten by the bank involved as a 'customer
relations' measure. Generally, the presentation of the proper PIN is taken
as 'proof' that an authorized user did perform the transaction, *until*
such time as the bank is notified that the card or PIN has been lost/stolen
or otherwise compromised.
However, the fraud rates are lower due to the us of PINs, so the
discount rate is also lower.
Sorry, but that is utter fiction.
PIN-based payments are processed as ATM (Automatic Teller Machine) network
transactions -- they are *NOT* 'debit' transactions via credit-card clearing-
house network.
> VISA got sued over the matter, since (at that time) it was impossible to
> tell whether the card number presented was debit or credit.
It's still impossible to tell, which is why most card terminals ask
whether the card is credit or debit.
Incorrect. (this is mostly a terminology issue -- what has become 'common
usage' is muddy at best and often misunderstood)
The terminal has no 'need to know' whether it is a bank-issued credit or
bank-issued debit card. It does NOT ask that -- contrary to what the buttons
appear to imply. <wry grin>
Terminals ask because many cards today are 'multi-function' -- they can
act as a bank-issued credit (or debit, but not both) card _and_ as an
ATM card.
The _labels_ on the terminals are technically inaccurate, the proper
labels should be 'Credit/Debit' and 'ATM'.
There are -four- types of cards in existance in the U.S., today, with
=two= unrelated, unconnected, types of processing networks.
Many, but _not_ all, cards have 'dual credentials', and are usable on
both networks.
The four types of cards:
1) non-bank-issued credit cards. examples: Amex, Diners Club.
2) bank-issued 'association'-branded credit cards. example: Visa/MC.
3) bank-issued 'association'-branded debit cards. example: Visa/Mc.
4) bank-issued ATM cards.
The two types of networks:
1) the inter-bank ATM networks e.g. STARZ, CIRRUS,
2) the credit-card clearinghouses. e.g. VISA/MC, AMEX, etc.
A non-bank-issued card cannot be used on the ATM network.
A bank-issued card can function as a debit or credit (but not both) card,
as an ATM card, or as _both_.
The point-of-sale terminal asks a question to determine 'which network'
(ATM or credit/debit-card) to process the transaction over. When a card
can be used on both networks, there is no way to determine which network
should be used, =other= than to ask. As the old saw goes "ROM does *NOT*
mean <R>ead <O>perator's <M>ind" *grin*
If you press the "credit" button,
even if the card is a debit card, it is processed as a credit card--with
the credit card discount rate.
TODAY, that is correct. Before the VISA lawsuit mentioned above, that was
-not- the case. A VISA 'debit' card, _processed_as_a_credit_card_, was
charged at materially higher rates than a VISA 'credit' card.
$DAYJOB found that the clearing-house charged the same for processing the
transaction, but the passed-through charges originating from VISA were over
40% higher. It was impossible to predict the charges, which meant it was
impossible to automatically feed data into the accounting system.
I had a major argument/fight with $DAYJOB's clearinghouse and with VISA
corporate on this precise matter a few months before the above-mentioned
lawsuit was filed. $DAYJOB was a small-fry operation and did not participate
in the lawsuit.
That's why Visa's advertising and
contests promote customers using signature (i.e. "credit") transactions:
Visa gets more money that way (at the cost of their merchants).
Actually, VISA gets _some_ money rather than none. They don't get anything
on an ATM nextork (PIN-based) transaction.
It also saves the purchaser from being assessed a charge for a 'foreign' ATM
transaction by their bank -- typically at least $1, and possibly as much
as $4.
For a 'quality' merchant, the typicaal difference in transaction fees
between the two networks (ATM vs VISA/MC) is a fraction of a percentage
point. Small enough to be, generally, immaterial to the retailer.
> As a result of the lawsuit, the cost differential between credit and debit transactions was eliminated.
... except it's still there, though perhaps in the other direction.
You don't know what you don't know. Starting with the difference between
PIN-based ATM network transactions and PIN-less 'debit card' VISA/MC/etc
network transactions.
The discount rate for "debit" transactions is lower, but a PIN must be
used to get that rate.
Incorrect. That is an bank ATM card transaction -- not a merchant-account card
transaction. It is procesed by an entirely different network, with an
entirely different fee structure. Ususally including a fee of $1 or more,
charged directly to the cardholder for using an 'off network' ATM machine.
The VISA/MC network transaction rates are *identical* for VISA 'debit' and
VISA 'credit' cards. Since the above-mentioned lawsuit, that is.
The exact rates vary between card networks, card
processors and even merchants, but a few years ago the numbers I heard
were 4% for "credit" (i.e. signature) transactions and 1% for "debit"
(i.e. PIN) transactions.
I don't know where you heard those numbers but 4% on credit card transactions
is typical of what the 'we provide credit card processing for *anybody*'
sleazeball operations charge. The ones that fly-by-night internet-only
pornography operators use. A sizable, established, brick-and-morter retailer
with a an established record of few-to-no chargebacks will typically have
rates of around 1.4%. $DAYJOBB got a discount rate of 1.9% after putting
together only a six-month history with -zero- chargebacks. This was for an
established 'MOTO' (mail-order/telephone-order) business, located in a
downtown office building, gross reveues in the low 7 figures, but only a
few thousand dollars a month in card charges.
That is why those nifty PIN terminals appeared
everywhere virtually overnight: saving 3% on every "debit" transaction
easily paid for all those new terminals.
The PIN terminals appeared so that people could use bank ATM cards -without-
having to have the 'name' credit card. Especially when those 'name' cards
started applying significant 'annual fees' for the right to simply -have-
the card.
VISA/MC/etc 'debit' cards were usable at any location that took 'credit'
cards of the same brand, with _no_ additional equipment (not even a PIN
pad) long before widespread ATM networks existed.
In the early days of ATM transactions, but after 'networks' were in place
that allowed one to use an ATM card at any ATM of any 'cooperating' bank,
there was -no- charge to either the bank or the ATM owner/operator. The
assumption (borne out in practice, _then_) That there were roughly equal
numbers of transactions by non-customers at bank-owned ATMs and transactions
by bank customers at non-bank ATMs.
As ATMs proliferated beyond bank sites, into retail establishments, and
eventually integrated with the cash-register CC processing, that balance
no longer held. And 'per transaction' charges were assessed. ATM operators
charged 'foreign' customers a transaction fee for the privilege of using
their machines, AND banks charged their customers a fee for using 'foreign'
machines.
