It is important to take into consideration the business risk of customers using debit cards. With 36.2 billion debit card transactions occurring in the United States through Visa and MasterCard in 2009 alone, all businesses need to determine if the risks outweigh the benefits.
About the Business Risk of Customers Using Debit Cards
Between Visa and MasterCard transactions, Americans spent some $1.63 trillion using debit cards in 2009. Though credit cards still play a big part in the purchases made each year, many consumers are moving away from them and using debit cards to fund purchases instead. A debit card works like a check in that the consumer makes payment using the funds in a checking or savings account. There is no line of credit. Debit cards are easy to use and have become convenient enough to be useful in virtually all markets. As a business owner, you need to consider the key risk factors of allowing customers to pay using debit cards.
Transaction Fee Costs
One of the biggest risks for the business owner is being unable to pay the transaction fees. Both payment networks, MasterCard and Visa, as well as most others, charge a percentage to the business to process each debit card transaction. That fee is was 1.63 percent, on average, in 2009. The fee changes based on the payment network and other factors. This hurts the business' bottom line, since the business must either increase prices to accommodate the fee or to simply take the loss. Some businesses overcome this risk by implementing a minimum transaction requirement to use a debit card. This restriction, though, is a violation of the MasterCard and Visa policies.
Chargebacks are another risk of doing business with debit cards. A consumer has six months to initiate a chargeback on a purchase. If this occurs, the burden of proof of the transaction is on the merchant. One of the biggest problem areas is with online purchases, where the business is unable to obtain a signature. The business can fight chargebacks by sending a retrieval request and a small fee to the merchant account provider. Nevertheless, many of these providers side with the consumer, leaving the business unable to recoup a loss.
Debit Card Terminal Costs
In order to take debit cards in person, the business must purchase a debit card terminal. This costs several hundred dollars, but it is a requirement to process these transactions. The business must also obtain a merchant account to process transactions. If a business representative is unable to prove the company is a business and cannot receive a merchant account, third party payment companies may be another option. Those companies charge fees up to 15 percent, though.
A hold is another risk factor to consider. Merchant accounts place holds on funds due to unusual business activity. If the merchant account has strange activity above and beyond what is normal for your business, you could end up with a hold on all transactions to determine if debit card information has been compromised. This often happens when sales increase dramatically or when you do not describe your daily transaction volume properly to merchant services when you initiate your account.
Making a Decision
The business risk of customers using debit cards is very real, but it may be a necessary risk for most business owners. Credit card limits are lower than in the past, and many people are turning to cash budgets instead of relying on credit cards. If a business decides not to accept debit cards, this can affect the business's bottom line. Discuss costs and fees with merchant service account providers before making the decision on whether or not to invest in debit card transactions.