The Wall Street Journal ran an article last week on the rising use of debit cards, attributing the trend at least partly to consumers’ growing reluctance to use credit and a new preference for paying as they go. Unlike Europe where debit cards have long been predominant, payment volume on credit cards has always exceeded that on debit cards in the U.S. But debit card use has been growing rapidly over the past decade and Visa reported on Thursday that debit card use exceeded that of credit cards in the last quarter of 2008 for the first time in the company’s history. It’s hard to know the extent to which rising debit card use is replacing credit cards or is due to the gradual movement away from cash and checks, but it is certainly true that greater use of debit cards by consumers is good news for merchants.

As readers may already know, debit cards can be processed through the Visa or MasterCard system (also called signature or offline debit) or through an EFT Network (called pin based or online debit). Any debit card with the Visa or MasterCard logo can be processed either way as long as the merchant has a pad for the customer to enter a pin. Generally, interchange rates on transactions processed as signature debit are much lower than credit card processing rates. And rates on pin based debit transactions are even lower. According to a recent Federal Reserve paper, the average merchant discount rate on pin debit was 0.62% in 2007, compared to 1.75% for signature debit and 2.19% for Visa/MasterCard credit. These are just averages (small businesses generally face much larger markups than large businesses) and continue to change but it gives some sense of the difference.

So whatever the reason, merchants should be glad to see consumers whip out their debit card at the cash register and even happier when the customer takes advantage of the pin pad.