March 16, 2011
Debit or Credit? This is the age old question.
Do you currently accept Debit? If so, have you set your BIN management floor limits yet? If not, you could be losing money on unnecessary transaction fees.
BIN management sometimes known as “BIN spinning,” is a feature of Shift4’s Universal Transaction Gateway® (UTG®) that identifies card type as debit or credit. Validating that the card is debit-ready allows merchants to specify a dollar value above which all possible transactions will be processed as debit, thus saving money you would normally pay to your merchant service provider. You, as the merchant, have the flexibility to set this value at the point where the flat rate for accepting debit transactions and your negotiated discount rate for accepting credit transactions intersect.
What does that mean in plain English?
The vast majority of bank cards issued in the past few years have been debit cards that are backed by the card associations as well as issuers. These cards provide the cardholder the flexibility to pay using either debit or credit. This also provides flexibility to savvy merchants in that they can choose the most cost-effective method to process each transaction.
On credit transactions, merchants are charged a percentage of the total transaction amount (the exact percentage is determined by their discount rate); on debit transactions, merchants are charged a flat fee.
For example, if a merchant service agreement is negotiated for a $0.50 per transaction flat fee for debit and a 3% charge on each credit transaction, at what point does it become more cost effective for the merchant to process as debit? While you’re opening your calculator app, we’ll save you some time. In this case, the threshold should be set to $16.67.
This hypothetical merchant ought to set the floor limit at $16.67, meaning all charges greater than that amount will be automatically processed as debit. The PIN Pad can be configured to not even display the option for credit and instead immediately present this transaction as debit (of course, for customer service, the customer can opt out and request credit).
Exactly how much money a merchant can save by using BIN spinning depends on the average ticket price and transaction volume. Given the figures above, BIN spinning would save the merchant $2.50 on every $100 transaction. It’s no wonder banks are implementing promotions offering cash-back or other rewards to customers who use their check cards as credit instead of debit – their profit on credit transactions adds up quickly!
As always, if you need help setting your BIN management thresholds, please send an e-mail to [email protected], or give us a call at (702) 597-2480, option 2.