Whenever you accept debit cards as a form of payment, that transaction will appear on the customer’s credit card statement, often with “POS” or “POS debit” in the description. You may be wondering why. Every sale that goes through the point of sale system is technically a POS transaction. So why are debit card purchases singled out as POS debit?
The merchant descriptors applied to your customers’ bank account statements help them understand what that transaction was. If the terms are vague, that could lead them to flag the transaction as a fraud.
By understanding how this process works, you can be proactive in making your customers feel more secure. Here’s all you need to know about POS, POS debit, and how the process works for customers and merchants.
POS vs. POS debit
“POS” and “POS debit” are the two most common terms that will appear on customer statements when they use their debit card at the checkout online or cash register in person.
POS, as we know, is the point of sale terminal that allows transactions to be made with a tap, swipe, chip, or key. Theoretically, all purchases made at that POS device or through a POS system, including gift cards, should be marked as POS on a credit card statement. But that’s not always the case.
POS debit, comparatively, refers to a transaction that comes specifically from a debit card, sometimes called an ATM card. This debit card use, plus the POS system, equals POS debit. But there are a few ways this can work:
- Through a POS device in-store
- Through an ATM transaction (a cash withdrawal at a cashpoint)
- Through an online transaction via an online POS system.
In most cases, both POS and POS debit transactions are PIN-authenticated through the automated teller machine or point of sale transactions in person. In online transactions where the consumer manually enters card information, this is not the case.
In the case of in-person POS or online POS systems, signature-authenticated transactions or PIN not required transactions also fall under the POS debit umbrella.
It’s a minefield for customers to comprehend.
Alternative debit-related bank statement descriptions
In addition to “POS” and “POS debit,” there is also “DBT Purchase” to make up the array of terms relating to debit transactions.
While POS and POS debit usually refers to PIN-authenticated transactions (usually, but not always), a DBT purchase is a way to explain that the transaction was without a PIN. This is used in cases where a PIN is not required. It could be a contactless payment (EMV), an e-commerce transaction, or other payment methods that don’t require a PIN. Whatever the reason, DBT purchase is a nice clear description to use when a debit card was used, but no PIN number was needed.
POS Debit card vs. credit card transactions
When customers use a debit card — spending the money in their checking account — it is classified differently from a credit card transaction. Debit cards are connected to money that the customer has in an account. In contrast, credit cards are using money from the credit card network, which the customer will need to pay back.
Because these two payment types bring with them different levels of risk and card processing, they are listed differently and attract different fees. Although card issuers (banks and credit card networks) love credit cards for their earning potential, they charge higher fees because there is always the risk that the consumer might not pay.
Debit card transactions, comparatively, are straightforward for banks and card networks. The money is deducted from the consumer’s bank account. It’s already there. There are no more checks and balances required from that transaction.
Both payment cards can be issued by a card issuer, such as Mastercard and Visa. The difference is in where this money comes from — i.e., the cardholder’s bank account or the card network’s credit.
From a merchant perspective, debit card transactions are the best. Thanks to the ease of processing, debit card transaction fees are lower and safer. Plus, the Durbin Amendment of 2010 ensures that these rates cannot change over time.
Debit card transaction rates are capped at interchange rates of 0.05% + 22 cents. Merchants will still have payment processing vendor fees, but the base fees remain fixed. By contrast, credit cards have no similar fee protections and are subject to rising over time.
Where you can encourage debit card transactions, it’s worthwhile to do so. The only downside for customers is that it comes out of their main account, and there could be overdraft fees if they don’t have enough in there.
No card debit cards
For all our talk of debit cards, it’s worth also highlighting that there are also card-not-present debit cards.
Customers may use online banking to make payments from their debit account. They could also have their debit card attached to a digital wallet where they bring up the app and flash their phone to perform mobile payments.
While online banking will have its own bank statement description, mobile payments through their digital wallet fall under the same descriptors as card-present debit card transactions.
The mechanics of a merchant descriptor
The bank statement description that customers review is called a merchant descriptor. These terms can be used interchangeably. “Bank statement description” is more commonly used amongst customers, and “merchant descriptor” is more common with merchants. But they both refer to the same thing: the line of copy which serves as a way to identify the transaction.
Savvy customers will review the monthly statement from their bank to assess the transactions, making sure there is nothing out of the ordinary. Poor descriptors can lead to alarmed customers who think that something is awry. As a result, poor descriptions heighten the risk of fraud reports.
In most cases, these fraud reports are coming from consumers who have inadvertently failed to recognize one of their transactions, thus issuing a chargeback.
This is called friendly fraud — a type of fraud that was estimated to reach $50 billion in 2020.
One of the easiest ways to minimize friendly fraud is to create clear merchant descriptors. (Yes, you can make up your own.)
Types of merchant descriptors
There are three types of descriptors that every merchant should be aware of:
Static descriptors are also referred to as default descriptors or hard descriptors. These are essentially set-and-forget kinds of descriptors. For example, whether your customer pays with a credit card, debit card, or mobile, they’re going to see the same descriptor.
Dynamic descriptors are descriptors that change depending on the purchase. These are the ones that would specify POS, POS debit, DBT, or any number of others outside of the debit realm. They could also be dynamic to change according to the item purchased, like the name of a book being bought or whatever it may be.
Dynamic descriptors are not always available. It will depend on your payment service provider and what support they offer for dynamic descriptors. This descriptor is then passed onto the customer’s issuing bank through an API.
Soft descriptors refer to pending transaction descriptors. This would come up in the customer’s bank account when they are looking at transactions that have been authorized but not settled. What appears here is very often the same as the static descriptor, but there are a few odd approaches.
Some issuing banks display the payment service provider’s name in the pre-settled stage, such as Stripe, instead of the merchant’s name. While this is annoying for merchants, it will depend on the issuing bank as to what goes in the soft descriptor.
Keys to a clear merchant descriptor
Merchants that didn’t realize they could do this will likely have some auto-generated descriptors. Merchants that have uncovered this handy customization may have already mastered this art. However, it’s very common that merchants make descriptors with their own internal convenience in mind rather than what is helpful to the customer. You will need a balance of both. It’s critical that you use accurate merchant descriptors.
Merchant descriptor best practice
When crafting your merchant descriptor, it’s best to ask yourself: what do customers need to know? Through a bank statement or online banking, your customer can see whether the transaction information relates to their credit or debit account. That information is often automatically added by the bank, anyway. What they need to confirm is that the transaction is one they remember or one that makes sense. This can be done easily with the standard descriptor type, the static.
The most important information is your company name and your contact information. With both your company name and contact details, it immediately puts customers at ease. They can call you before calling in a chargeback if they can’t remember what their purchase was.
The format could be one of the following:
- Business name + URL + state + zip code
- Business name + phone number + state + zip code
- Business name + URL + phone number + state + zip code.
Be mindful that different online banking portals will show this information differently. Some may not have the space to list your name, URL, phone number, and location details. Some will not even have the space to list your name and URL. It’s good to play around with these in different online portals to check how customers view them so that you can design them with the most efficacy.
As for dynamic descriptors, if you charge for a subscription, one dynamic descriptor structure could be the invoice number and then the company name. LinkedIn is an example of this formula, using XXXXXX_LINKEDIN for their descriptors.
For lesser-known businesses, it can be more important to have the company name and contact information. The invoice number or line-item number won’t help your customer to remember the transaction.
As with the static, it’s worth playing around with how this shows up on different online portals. You want to make sure that the item number doesn’t compromise the information they will need to identify you and their transaction easily.
Avoiding confusion around payment transactions
Seeing terms like “POS debit” in a bank statement can cause confusion in consumers and frustration among merchants. Thankfully, accurately naming your merchant descriptors is one simple way to minimize these issues.
And to ensure that all transactions go smoothly in your business, it’s best to partner with a reliable payment processor like Stax by Fattmerchant.
Our all-in-one platform radically simplifies your payments infrastructure. Best of all, you only pay an affordable subscription fee based on your needs. Get in touch with Stax today and see how we can help you save in payment processing costs.
To learn more about our services at Stax, reach out to us today. We will be happy to answer your questions and help you benefit from our modern payment solutions.