If you regularly use credit cards for shopping, the chances are that every once in a while, you have been asked to shell out an extra 1% or even 2% at POS (Point of Sale) counters for using your card. Before even getting into the details of why merchants do this, what you need to know is that this practice is definitely wrong and that there are RBI regulations that allow penalising such merchants by blacklisting them.

How does it work?

When you swipe your card on a POS machine, the merchant has to pay a small percentage (about 2%) as rental fees to the bank for using the POS machine. Ideally, these charges are to be borne by the merchant as a part of the cost of running the business, and in particular, for having the convenience of taking payments through a POS. But some merchants try to recover this charge from customers.

In the RBI's own words: "…merchant establishments levy fee as a percentage of transaction value as charges on customers who are making payments for purchase of goods and services through cards. Such fees are not justifiable and are not permissible as per the bilateral agreement between the acquiring bank and the merchants…"

RBI adds that any such instance can be used as a strong argument by the bank to terminate its POS-linked relationship with such merchants.

Why are merchants wrong to charge that extra amount from customers?

Nowadays, with the proliferation of PoS machines and ATMs, people do not generally carry a large  amount of cash when they go shopping. In this scenario, it works to a merchant’s advantage to have a PoS machine installed. When a shop lets their customers  pay using cards, it sells more than what it would have with only cash purchases. Technically, merchants can accept cheques, but they hardly do, because of the fear of these cheques being dishonoured. So, even if we were to keep RBI regulations aside for a moment, common sense says that having a PoS machine is in the best interest of the merchant. When a customer uses credit cards  or debit cards, the merchant is assured of getting his money immediately after the transaction is approved.

Therefore, in an ideal scenario, it is clear why the merchant should not be charging customers for using the PoS machine. However, we do not live in an ideal world. There are cases when a merchant tries to pass on the 2% expenditure onto the customer, even at the risk of getting the business blacklisted by the bank.

What would you do if you have to buy something urgently and do not have cash in your account to withdraw from a nearby ATM? Chances are that you would give in to the merchant’s demand for a 2% fee for using your card. The best option for you in such a situation would be to tell the merchant that you are aware of RBI’s regulations and can make a complaint with the bank to get the merchant blacklisted. If the merchant is  ready to reduce the charges, then you might be willing to pay a small fee to go ahead with the transaction. In most cases, this would work, as the extra charge would be shared by you and the merchant. However, if the merchant is already earning a high margin and still charging you for a card payment, it is only right for you to refuse to pay the extra amount.

The next time a merchant asks you to shell out that 1% or 2% extra for card payments, rest assured  that you can tell the merchant that you are well-aware about the RBI's notification on Credit Card transactions at POS'and will not be taken for a ride.


Disclaimer: Copyright Kotak Mahindra Bank Ltd.

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