We often shop using credit or debit cards. These credit cards has given us the freedom to spend the way we wish without carrying cash. However, does it bring any other costs also while spending. It has been witnessed that at few merchant outlets, shop owner asks for additional 2% for accepting payment through card instead of cash. It is as good as if the cashier is asking you to pay by cash only since your choice of shop is not depending on card acceptance. Although, you are not eager to pay these 2%, but now you don’t wish to spoil your mood and efforts put in to select the item of your choice. Here the question is whether one should pay that extra 2% or not. In order to find answer to this question, we looked for RBI guidelines and found the following
RBI notification dated September 25th, 2013, point 4 says, 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.
According to RBI’s November 2007 report of “Review of Payment and Settlement Systems in India 2006 – 2007, Clause 4.18 – “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 un-remunerative to absorb this interchange fee.”
So when cashier at any departmental store or any merchant request for POS terminal in order to establish convenient payment mechanism and grow his business facilitate, they agree to pay a fee of 1-2% to the bank for each transaction. Whereas, practically they try to pass on these charges to customer only. Typically, it is true on high value and low margin items, where merchant try to save his cost and add to his profits. For other items, where the profit margins are good, they do not bother for these small amounts and look for immediate sale.
From a merchant point of view, it is justified and should be the standard practice but from a customer point of view, the facility is to the benefit of customer only, especially when merchant has already agree to bear these charges irrespective of profit margins. These agreement are on records with the respective banks whose swiping machine is used at that point of sale.
Well, there is an exception to this also. The outlets like petrol pumps or few government agencies are allowed to charge the extra surcharge since their profit margins are very low
So, as an answer to our query, we do not have to pay extra 2% in the name of transaction charges. In case you find any merchant insisting for the same, you may show them these RBI notifications make them aware of implications. Instead put this amount into your kid’s piggy bank, which is a far better place for that money.