Merchant asking to pay the 2% extra for purchases through debit or credit card? Say NO!

Consider this scenario – You enter a multi-brand mobile showroom and select a high-end Smartphone to purchase. Just as you are about to provide your debit or credit card to make the payment, the cashier tells you that 2% extra will be charged if you are going to pay by card. And that is aptly followed by the pacifying advice to pay by cash to save on these extra charges after which you are directed to the nearest ATM.

Now although you are not too eager to pay this additional amount just because you are using a card, your mind is already made up and it is too good a deal to let go of, so you reluctantly agree to bear those charges. But is it right?

RBI’s notifications on POS transactions through card Debit cards

As per point 4 of the RBI notification dated September 25^th, 2013, it is unjustifiable on the merchant’s part to charge customers for buying goods and services as it is not permissible as per the agreement between the merchant and the bank which issued the POS (Point of sale) terminal or card swipe machine to the merchant. Such practices call for the banks to terminate their relationship with such merchants.

Credit cards

Clause 4.18 of RBI’s November 2007 report of “Review of Payment and Settlement Systems in India 2006 – 2007,

“In case of Credit Cards and Debit Cards there is no visible charge on the customer for use of cards at merchant establishments. Charges are levied directly on customers only at few locations like petrol stations etc. and for cash withdrawal at ATMs. In all other cases, charges levied by banks have been for the credit availed (beyond the due date). In credit cards and debit cards the interchange fees – the charges paid by the merchant are an integral part of the pricing structure of credit and debit card transactions. As this fee is levied on the merchant establishment, there is differential cost for the merchant for payment received by cards or cash. This serves as a disincentive for merchants to encourage payments by cards. This was observed as the reason why the use of cards for purchase of valuable items and goods continue to be discouraged by the merchants; if payments are made by cards the interchange fee is recovered from the customer. This is because, in case of larger value purchases, the merchants find it unremunerative to absorb this interchange fee.”

What does this mean?

When merchants request for POS terminals for convenience of the customers and growth of their own businesses, they agree in principle with the bank to pay a transaction fee between 1-2% for each transaction. But when the transaction actually takes place, this charge is passed on to the customer. Merchants claim that whether these charges should be levied or not depends entirely on the profit margin of the merchant. If the profit margin is high, merchants generally do not charge any transaction fee but if these margins are low, then taking these charges from the customers is justifiable according to them.

However, that still does not justify merchants charging 2% extra on card transactions. They are liable for bearing the transaction fee regardless of the margin since they agreed to it in the legal agreement with the bank whose card swiping machine they are using. The only exception here are petrol pumps who are allowed to charge the extra surcharge since their profit margins are very low.

From now onwards, make it a point to not agree to paying 2% extra in the name of transaction fee as that charge is something that needs to be paid by the merchant and bring these RBI notifications to their notice to put a check to this incorrect practice by the merchants.