Published on September 19th, 2014 | by Chuck15
Who’s The Sucker?
Many of us like to do certain online debit card transactions using our PP debit card. This debit card gives 1% cash-back for non-PIN purchases. 1% isn’t a great number, but it is great for something which only takes debit card – it’s better than nothing.
One example of using the PP debit card is to load Bluebird/Serve with a debit card up to $1000 per month. This yields us $10 cash-back per month.
Another (dying) example is loading Chime $100 per day, which would yield even more per month. This option ends October 8 when Chime begins charging 3% for loads from certain debit cards, including PP debit card.
In all of these instances the transaction is presumably running through as a PIN-less debit transaction. A PIN-less debit transaction should probably cost something closer to a debit transaction, without the exorbitant credit card processing fees. Only certain industry sectors are allowed to run such transactions. I believe all financial institutions are able to process PIN-less debit transactions.
Amazon cautions debit card users that by default they run all debit cards as PIN-less debit transactions, not as credit transactions, though they allow you to opt out and have your debit card be processed like a credit card. They advise you to contact your bank to see if the PIN-less debit method will stop you from receiving rewards. See this FatWallet thread for some more details.
Anyway, with the PP debit card, they seem to always issue rewards for online transactions, except when they specially code it not to earn rewards, such as when PP debit worked on Evolve (I believe it doesn’t work anymore), they had it coded not to earn any rewards.
What’s the Cost?
I’ve long wondered what does it actually cost to process these transactions? Is PP the sucker for giving me 1% back, despite not having gotten anywhere near that from the fees, or is Bluebird/Chime the sucker for processing the payment, despite the fact that they’re only taking debit cards which is supposed to cost them very little?
I had always assumed that it was PP who is the loser here; since it’s a PIN-less debit transaction, they’re just getting the 21 cents swipe fee, but no percentage of the swipe-amount (other than the tiny .05%). It is possible that the swipe fee is higher for certain debit cards, as mentioned here, but I had always thought that there was still no real percentage of the swipe being paid, since it’s processed as a debit, just a higher swipe-fee of, say, 50 cents instead of 21 cents.
As we mentioned, Chime announced that they will start charging 3% for certain debit cards issued by smaller banks. But the number 3% seems odd to me. It sounds like to process these debit cards costs them similar to credit card processing fees. Otherwise they should have charged a 1% or a flat $1 fee per load.
I also saw on this website they speak about saving around 1/3 of the processing costs by using PIN-less debit as opposed to regular processing. Again it sounds like PIN-less debit could be costing close to the cost of credit card processing.
Who’s the Sucker?
If that’s the case, then it’s not PP who is the sucker here, it’s Bluebird/Serve and Chime (until October). And then it’s likely that PP will continue to payout for all online debit transactions since they’re actually making money on these transaction, similar to a regular signature-transaction. We’d have to worry more that Bluebird/Serve will stop allowing it, as Chime did, but we wouldn’t need to worry much that PP would stop it. PP was always my bigger worry. (Okay, “worry” is a strong word for this.)
Ultimately, I really don’t know the answer; what do YOU think – who’s the sucker?