Why Shouldn't You Pay 2% at POS Credit Card Transactions? – Kotak Bank
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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 penalizing such merchants by blacklisting them.

How do POS Machine Charges 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.

Key Features & Benefits of Digital POS Services

  • Mobile checkout has become easier with the availability of mobile applications for point of sale (POS) systems.
  • Most POS in credit card systems cater to both Apple and Android platforms, allowing retail staff to ring up purchases anywhere in the store or servers to take orders and payments at the table.
  • While some POS systems are exclusively for Apple or Android, it's essential to choose one that meets your platform preference.
  • Inventory management, customer management, and loyalty programs are additional features that can be incorporated into a POS system, depending on your business needs.
  • Advanced systems can even personalise coupons and offers for customers at the checkout counter.

Why Merchant Is Not Liable To Ask For Credit Card Swiping Charges?

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 let’s 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 to 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.

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Frequently Asked Questions

Can the shopkeeper charge an extra 2% for card payments?

A. Credit card companies and banks charge higher fees to recover the cost of lending money to customers. But, they urge merchants not to pass credit card swipe charges to customers and instead bear it themselves. In some places, merchants can charge customers an extra fee for using credit or debit cards to cover the processing costs.

What is the credit card charge fee?

A. Credit card MDR charges fees range from 1% to 3% per transaction and vary based on the payment company chosen (American Express, Discover, Mastercard, or Visa), the merchant category code (MCC), and the type of credit card used.

How do you avoid credit card swipe charges?

A. To prevent finance charges, ensure that you pay your balance entirely and punctually each month by checking your POS transaction on bank statement. Credit cards are obligated to grant you a grace period, which is the time between the conclusion of your billing cycle and the due date for your balance payment.

What are the merchant fees in credit cards?

A.MDR charges on credit card are nearly unavoidable for businesses that accept credit card payments. These fees are established by credit card companies like Visa or Mastercard and are typically a percentage of the sale plus a per-payment fee. Additionally, a merchant services provider that handles your credit card transaction charges in India may charge an additional cost. These fees make up the credit card merchant fees that businesses must pay to accept credit card payments.

What is the POS charges for credit card?

A. Typically, banks impose credit card swiping charges in India from 1% to 3% on each transaction conducted through a point-of-sale (POS) terminal. This means that when your customer uses their card and the transaction is finalised, the bank will levy credit card merchant charges to the transaction amount as a merchant discount rate (MDR).

How do I avoid credit card transaction fees?

A. To prevent financing charges on your credit card, ensure you pay your POS machine charges in full and on time each month. Credit card companies must provide a grace period, which refers to the time between the billing cycle's conclusion and the due date for the balance payment.

What is POS Meaning in Banking?

A. Point of Sale (POS) machine enables customers to pay for goods or services through various means such as debit/credit/prepaid cards or QR scanning. Merchants use this electronic device to receive payment in exchange for their products or services.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.