PIN based debit leads to increased security and lower costs for merchants

When a merchant processes debit card transactions, there are two major categories that the transaction can be processed in – signature debit and PIN based debit. By opting to allow PIN based debit, the merchant can process faster transactions that are considered to be less risky by the bank networks, as the user’s PIN is considered a secret and this number is entered by the customer themselves.

In a signature based debit transaction, the debit card is swiped through a terminal and a receipt is printed. The customer has to sign the store’s copy of the receipt to verify the transaction. This is immediately familiar to those who accept credit cards as payment, as the process appears to be very familiar.

The pin based or online debit transactions are done by using PIN pads which must be attached to (or integrated into) the credit card machine. The PIN entry device is encrypted, so that the PIN numbers cannot be retrieved from the device, nor stored in the merchant’s terminal. The requirement that the customer enters their own PIN number is of importance here, as no one should ever be forced to expose their PIN, compromising the security of the system.

There are many advantages for a merchant has PIN based transactions available. One advantage is that a merchant may receive funding or a purchase on the same day that purchase was made. This is a plus for a merchant who may normally wait at least two days for a credit from the traditional signature-based transaction to clear. The reason PIN based transactions are referred to as being "online" is because the money exchanges hands in a more real-time manner. Another advantage is that payment card fees for PIN based debit are usually lower than signature-based transactions, due to the extra security implemented by the PIN number being present, the online nature of the transaction, and the different networks the transaction runs over.

In order to perform a PIN based debit transaction, business owners have to invest in a special PIN-pad device. There are two choices to select from, an external device or a built-in device. Terminal machines can be purchased with a pin-pad built directly into the keypad. This would require merchants to turn the terminal toward the customer during a transaction to allow the customer to enter their PIN number. This is a common scenario with a wireless terminal, as the merchant can simply had the terminal to the customer. The other choice is an external pin-pad device. This seems to be the quickest and easiest choice to bring older equipment up to speed. These plug-in devices are available from most major equipment manufacturers, and connect using a cable to the terminal itself. The PIN pad is then placed or handed to the customer for PIN entry. To find a compatible PIN pad for your terminal, contact your processor. The PIN pad needs to be encrypted for your processor’s network, so simply buying a PIN pad will not be a guarantee of functionality unless it is an approved device.

The availability of PIN based debit is a blessing for both merchants and customers alike. By allowing transactions to clear on the PIN based networks, the merchant can save money and increase transactional security.