What is a Signature Debit?

A signature debit is very much like using a credit card to pay for items. When a debit card has major credit card company logos, typically MasterCard® or Visa®, this means it can be used just as a credit card would be used in most stores. However, unlike the credit card, the debit card is linked directly to a bank account, instead of to a line of credit. Purchases only work, in most cases, if the amount in the bank account is large enough for the purchase. The big difference between the signature debit and using a PIN number to secure the transaction is that the PIN or personal identification number is not used for the purchase; instead a customer simply signs for the purchase, just as they would if they did use a credit card.

There are other differences between a signature debit purchase and a PIN debit purchase. For merchants, these transactions are usually less than credit card transactions, but more than PIN transactions. This has led many merchants to install PIN number input devices instead of just offering signature card services. They also may practice a type of encouragement called steering, in which they ask the customer to enter their PIN number rather than signing for the purchase in order to save money on each transaction.

Steering is not looked upon kindly by banks that offer signature debit cards to customers because they stand to lose a little money on a purchase made by PIN debit. However, they haven’t asked merchants to stop using it. Instead, they’ve offered incentives to customers to start asking for and using signature transactions.

Some banks offer money back or special bonus rewards to customers who will opt for making a signature debit transaction instead of entering a PIN number. Not all banks do, but it’s important to know that they will assess a higher fee to the merchant for the transaction. Customers who really enjoy working with a specific merchant might opt for using a PIN transaction when available to save that merchant money.

On the other hand, bonuses or convenience may make using the signature debit approach to payment easier. For those who can never remember their PIN number, it’s not necessary for transactions with numerous merchants, provided they take major credit cards. One thing people should know about these transaction though is they may put holds on a certain amount of money in an account, and if the account doesn’t have enough money to justify the hold, the card may be denied. Also, it can take a few days for the hold to come off an account, and this can freeze money above the actual purchase amount, making it temporarily unavailable. Once the debit is processed, the hold is usually removed, but it can prove inconvenient while it remains in place.