September 26 , 2013
Have you ever been asked by a merchant to pay your bill in cash else pay extra bucks if using debit card? RBI issued a circular yesterday saying such a charge on customers for debit card transactions is unjustified and not permissible. It has asked banks to cut ties with merchants who charge this fee from customers. Read on to understand why merchants charge fee in the first place and why you don't need to pay it.
Merchants incur cost in accepting card payment
When you pay bill at a mall, departmental store, restaurant or the petrol pump using plastic card- debit or credit- instead of cash the merchant incurs a cost in servicing the payment. This he is supposed to pay to the bank that installed the swipe machine (acquirer bank) in his premise, and is shared between that bank, payment network provider (Visa, MasterCard etc) and your bank that issued card. It is an unfair practice on the part of merchants, to levy transaction fee on customers.
Transaction charge to merchant has a technical name- Merchant Discount Rate (MDR). Last year RBI capped MDR for debit card transactions to
- 0.75% for transaction value up to Rs 2,000
- 1% for transaction value above Rs 2,000
Most of this fee goes to the issuing bank and is called interchange fee.
Merchants not supposed to levy fee on debit card transaction to customers
RBI has called to mind that according to agreements between merchants and issuing bank, fee on debit card transaction is not to be levied on customer, so you do not need to pay the fee, even if some merchant demands it. Pay in cash if you have it, else get the merchant to pay the fee himself; he would not let go off a client just for this.
In fact, it is ironical that although electronic payments work out to be cheaper for banks than cash and cheque, they are inclined to charging merchants and customers for transaction charges on credit cards and debit cards whereas transaction charges involved in cash and cheque are almost nil.
RBI is in for bringing down interchange and transaction fee as that would make debit cards payments more viable for merchants and therefore to customers as well. Actually the fee should be lowered so significantly, that even the corner kirana stores should accept card payment.
What about credit cards? Do I need to pay transaction charge?
For credit cards too, issuing banks do not charge customers any transaction fee, except in case of railway ticket booking through IRCTC and petrol surcharge. Yet, merchants levy transaction charge they face, on customers. You can stand up to them. Try asking them to share with you the bank clause that allows them to levy transaction charge on customers.