Why You Shouldn’t Pay at PoS for Card Transactions

If you use credit cards for shopping, chances are that you have been asked to shell out an extra 1-2% at the PoS (point of sale) by some merchant for using your credit card. Before reading about why merchants sometimes do this, it is important that know that this practice is wrong and that RBI regulations allow  penalisation of such merchants by blacklisting them.

How does the PoS system work?

When you swipe your card on merchants’ PoS machines, they have to pay a small percentage of the transaction (about 2%) as rental fee to the bank. Ideally, these charges are to be borne by merchants as cost of running the business, and in particular for having the convenience of taking payments using POS. However, some merchants try to recover these charges 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…"

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

Why are merchants wrong to charge extra from customers?

People generally do not carry large amount of cash while shopping. When a merchant agrees to let customers pay using their cards, he is selling more than what he would have sold had he only allowed cash purchases. People also have the option to pay by cheque, but these are generally not well accepted because of the riskthat they will be dishonoured.

Keeping aside RBI’s regulations for a moment, common sense dictates that when customers use credit cards, merchants are assured of getting their money once a transaction is approved. Merchants benefit because of the PoS machine and have therefore agreed to pay the 2% charge to the bank for using these machines; if they try to pass on this expenditure to the customer, they are threatening their own businesses, as the bank might blacklisted them if they are reported.

However,  we have been discussing an ideal scenario. What would you really do if you have to buy something urgentlyand do not have cash in your account or do not have access to a nearby ATM? Chances are that you will go ahead with the transaction even if the merchant charges you that extra 2% for using your credit card. The best option in such a situation would be to tell the merchant that you are well aware of RBI’s regulations and can make a complaint with the bank to get the merchant blacklisted.

However, in case 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 could work, because the extra charge would be shared by both the customer and the merchant.

If the merchant is already charging a high margin for the product he is selling, and still charges 2% for using the PoS machine, it is only right that you refuse to pay it. The next time you are asked to pay 1-2% for swiping your card on PoS machines, you can go ahead and rightfully tell the merchant that you are well-aware about RBI's notification on ‘POS transactions by credit cards' and will not be taken for a ride.

Disclaimer: Copyright Kotak Mahindra Bank Ltd.