PIN vs. Signature

When you swipe your debit card at the checkout, you are asked to choose “Debit or Credit?” The question that is being asked is really “Pin or Signature?” referring to the type of debit card authorization.

PIN Debit transactions are routed through electronic funds transfer (EFT) networks. When a customer chooses debit and enters her PIN, the EFT network authorizes the transaction and immediately deducts the funds from the customer’s checking account that is linked to the debit card. PIN debit transactions require an electronic authorization and are often called “online” transactions.

When a customer selects “credit” a signature-based transaction takes place. Usually, funds are deducted from the associated checking account within a day. Most merchants submit all their credit card transactions at the end of the day and they receive their money within a day or two of settlement. Signature debit transactions are referred to as “offline” transactions, since a PIN debit network does not play a role in processing.

PIN debit is considered to be more secure because the cardholder authenticates the transaction with a PIN number, so the transaction cannot be completed unless the user knows the PIN.

Signature debit transactions cannot be easily verified. For purchases of less than $25, the signature requirement is often waived. Online, mail, and phone purchases use signature based debit processing although there is no way to actually sign anything.

Cardholders are not typically liable for fraudulent debit transaction, if reported in a specified period of time. Whether you choose debit or credit, keep your receipts and pay close attention to your bank statements.

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