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 25th,
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.
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