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Credit and Debit Payment Processing Differences and Similarities

August 10, 2021

If you’re a small business owner you’re probably all too familiar with the high fees and complications of accepting credit and debit cards. That being said, paper checks and bank drafts are a thing of the past. These days, the world runs on plastic, and if you don’t have an efficient way to collect credit and debit payments, you’ll lose valuable business.

So, what’s better for your business, credit or debit processing? Can they exist on their own? How are they different and how are they similar?

In this post, we’ll cover the differences and similarities between credit and debit payment processing as well as what you can expect when accepting these payments through a point of sale.

From there, you’ll have the information needed to choose a payment processing service that benefits your overall revenue, instead of taking from it. Don’t settle for less! Choose a payment processing service that looks out for your bottom line. 

What Are the Differences Between Credit and Debit Cards?

Credit cards represent borrowed money from a bank or financial institution. In contrast, debit cards represent money that a customer already owns and will be deducted straight from their bank account. 

Both debit and credit cards require a PIN to work, though many cards now accept tap payments up to a limited amount. In credit cards, the risk of tap payments is higher as the customer may default on the loan.

On the customer side, the differences between debit and credit come down to simply money you have or money you don’t have. Debit cards pull money directly from a customer’s account whereas credit cards represent money that does not exist physically. It is generally up to the customer’s discretion which card they use more often.

Yet, for businesses, the difference is much more significant.

What Are the Similarities Between Credit and Debit Payment Processing?

Both credit and debit card payments are processed at the point of sale. Both purchases will be accepted or declined within a matter of moments, depending on the status of the customer’s account.

Both card types give customers access to money that is not on their person, allowing them to make large or spontaneous transactions without going to an ATM.

Credit and debit cards can be used for online payments and e-commerce shopping. Payments online are processed similarly to what is described below.

What Are the Differences Between Credit and Debit Payment Processing?

While both debit and credit cards operate in similar ways at the point of sale, the way they are processed is very different.

When using a credit card, a customer’s transaction will be processed through a credit card network such as Discover, Mastercard, or Visa. The transaction details will be sent to the network requesting a signal of acceptance from the issuer of the card. Once accepted, your point of sale will update itself with the appropriate information. All of this happens in a matter of seconds.

There is a greater risk involved in credit transactions because the customer may default on the loan.

In a debit transaction, approval is already pre-authorized by the bank to take funds from a specified account. Transaction information is sent through the network to the issuing bank. The bank will then authorize the payment and withdraw the funds from the specified account. 

Debi transactions have a very low risk of default because the funds need to be present in order for the transaction to be approved. If the money is not available, the card will decline immediately.

For merchants, debit transactions often cost more than credit transactions and some processors even charge a fee for charges that fall below a certain amount. 

Which is Better for High-Risk Merchants: Debit or Credit?

If you are a high-risk merchant, you may be wondering what card you should prioritize at your point of sale: debit or credit?

High-risk merchants usually pay 1%-2% more per transaction than standard merchants. In addition, they often face longer contracts, tiered pricing, chargeback fees, automatic renewal clauses, and account freezes or terminations.

When using credit and debit payment processing, you can expect a higher cost than a merchant who is low risk. 

To mitigate the risk to your business, it’s important to choose a high-risk credit card processing provider such as Transcend Pay. When choosing a high-risk merchant processor, review their policies extensively and consider all possible business costs. Hidden costs such as monthly service fees or higher per-transaction fees can be damaging to your bottom line.

As well, look at other services offered by your processor. What type of payments will they accept? Do they offer any added solutions for high-risk merchants? These added benefits can improve your overall returns.

Remember: don’t enter into a long-term contract that is locked in at a high rate. Your business will always be growing and changing and you want a processing plan that can evolve with you.

Why You Need ACH Processing Today

There is nothing worse than a payment processing service that costs you more than you earn. If you feel your payment processing system is eating into valuable revenue, it may be time to consider new options. 

ACH processing is a must-have for modern businesses. If you are a low-risk or high-risk merchant looking for a no-reserve payment gateway, then Transcend Pay can help you realize those goals.

Get a quote today to find out how you could save money and improve your payment processing services with our simple platform. We offer a dynamic banking network and no-reserve merchant accounts without any hidden fees.

Our innovative payment processing platform can help you transcend the boundaries of your financial positioning. Get more money for your business without being strapped down by processing fees. Get started with Transcend Pay now!