The Big Difference Between Credit and Debit Card Transactions

By: Latoya Irby

Credit cards and debit cards are two of the most popular types of electronic payments. The two are so similar, it’s hard to tell the difference. Depending on how the consumer chooses to use their debit card, it may even process just like a credit card. But, the two cards have some key differences that merchants who accept these electronic payments should know.

Source of Funds

One of the biggest differences between credit and debit cards is how the consumer funds the transaction. With credit card transactions, the credit card company pays the merchant for transactions, usually within two to three days, then later collects payments from the consumer per the credit card agreement. The credit card company accepts a degree of risk by paying merchants for transactions before receiving payment from the consumer, which could take months, even years in some cases. In exchange for accepting this risk, the credit card company charges a higher fee to merchants. Debit cards, by comparison, are tied to a consumer checking account and funds for transactions are pulled directly from the consumer’s account right away. This reduces the risk of processing debit card transactions.


Credit and debit card processing are sometimes the same, depending on where the transaction takes place and whether the consumer opts for “Credit” or “Debit.”

Credit card transactions are processed through major credit card digital networks, depending on the network associated with the consumer’s credit card (Visa, MasterCard, AMEX). Transaction details are sent from the merchant’s payment processor to the credit card network, then to the credit card issuer for an acceptance or decline. That decision is then routed back along the same path to the merchant’s point of sale or the app or website where the consumer is attempting payment. This all happens within seconds.

With in-person debit card transactions, consumers can choose whether to complete their transaction by signing for it (credit) or by entering their personal identification number, PIN (debit). PIN-debit transactions are processed through networks like Star, Pulse, Interlink, or NYCE and must be made with via an encrypted PIN-entry device, making the PIN option unavailable for most web and mobile debit card transactions.

Consumers can still use their debit cards online and mobile, but the transaction is processed like a credit card transaction rather than being routed through the debit card network. The same applies to signature-debit transactions made in person.


Accepting credit and debit cards is not without its costs. Every entity involved with processing credit and debit card payments charges its own small fee for the work they do with handling the transaction.

Merchants pay an interchange fee on every debit and credit card transaction processed. Interchange fees cover the costs of processing and offset fraud. The standard interchange fee is set by the credit card processing network and includes both a flat fee and a percentage that’s applied to the transaction amount. The specific interchange fee depends on the type of card, whether the payment is present for the transaction, the industry and size of the merchant, and the region or country where the purchase occurs.

Interchange fees are higher for card-not-present transactions, which is typically true of web and mobile credit card transactions. The higher fee is to help offset higher costs of online gateways, higher risk with transactions, and increased frequency of fraudulent transactions.

Debit card interchange fees are typically lower than credit card fees, even signature-debit cards, making the cost of accepted debit cards lower than that of credit cards.

The interchange fee is bundled with the discount fee, which is set by the merchant’s bank and includes the bank’s fees for processing credit and debit card transactions. Merchants can – and should – negotiate their fees and shop around with different banks for the most competitive rates.

Contact HealPay if your business is looking for more transparent pricing.

Some smaller merchants choose to avoid setting up a merchant account with a bank, or merchant acquirer, and instead work with a payment aggregator like PayPal, who sets up the account on the merchant’s behalf for a simpler pay structure.

HealPay blogger, LaToya Irby