Debit cards are getting more popular in the past few years. We have seen some debit card issuers offered debit card promotions recently. (Chase Visa Debit Card and BOA Keep the Change Program) For example, the latest Chase Debit Card promotion will give you $25 cash back for every $250 charges on your Chase Visa Debit Card (This promotion terminated on June 15, 2008.). The total rewards you can get is $75. According to the promotion rules, an eligible purchase required you to use signature rather than your PIN of debit card. Some of you might not understand why they required you to use signature but not PIN even though you were using a same Chase debit card.

The truth behind this is there are currently two ways that debit card transactions are processed: online debit (PIN debit) and offline debit (signature debit). Sometimes, we refer to the previous one as “debit purchase” and the later one as “credit purchase“.

PIN based debit cards require electronic authorization of every transaction and the debits are reflected in the user’s account immediately. A PIN is required to finish the transactions.

Signature debit cards use a POS system like credt cards do. This type of debit cards may be subject to a daily limit, or a maximum limit equal to the checking account balance from which it draws funds. Transactions conducted with offline debit cards require 2~3 days to be reflected on users’ account balances. This kind of transactions are inaccurately referred to as “credit” transactions even though no credit is actually involved. This is because they are processed through the Visa or MasterCard networks in the same manner as actual credit card transactions.

Visa required you to use no-PIN because they can charge transaction fees from those merchants. If you use PIN at checkout, the transactions will go through other networks and visa is not participated in the transaction (no revenues for them!).

We are now clear why visa required you to use signature rather than PIN at checkout to be eligible for the promotion.

Visa actually has allowed banks to permit merchants to waive signature requirement when you use a visa debit card for transactions less than $25. However, if you want to use PIN at checkout, you are still required to enter your PIN even the sale value is only $1. This is because visa doesn’t allow banks to waive  the entry of PIN at checkout for PIN debit.

As I explained above, when a customer uses the debit card as a signature card, the transaction is processed over Visa’s network, but if the customer uses a PIN with the same card, it is processed over a separate network. However, effective from July 1st, 2008, you can use Visa debit cards for smaller purchases without entering your PIN, the same way you can skip signing receipts when you use signature based purchases. This is a result of the investigation of antitrust division of Justice Department.

We like the signature waiver which will speed up our checkout process and reduce the waiting time. The PIN-waiver will also help us to use debit card more conveniently.