No surcharge on credit card payments: Banks

If nothing else, this would make consumers think twice before flashing their credit cards. For some years now, it has been observed that certain merchant establishments-especially budget jewellery, electronics and grey market outlets-ask customers to shell out about 2% extra for purchases with credit cards.

Why this extra charge? After all, credit cards only add to footfalls and are ultimately good for business.
This is how it works. A banker elucidates that merchant establishments must pay a certain fee for using a point-of-sale terminal (swipe machine) to the bank that installs it (the acquiring bank). Evidently, some pass on this charge to consumers.

All card-issuing banks TOI spoke to, and the Credit Card Holders' Association of India specified that merchant establishments cannot do so. Says a senior banker, "In the US, there is a law that the type of payment should not have any impact on the price... Unfortunately, in India, merchant establishments fall outside the purview of banking regulations."

A Mumbai consumer was recently asked to pay 2% more for cosmetics worth Rs 1,575. She chose to use cash instead. Last week, a Mumbai banker himself paid Rs 120 extra for a cellphone purchase because he didn't have enough cash on him. Says Sachin Khandelwal, head, cards group at ICICI Bank, "Typically, there is a fee a merchant agrees to pay for a terminal... If a merchant tries to recover it from customers, they must walk out." Khandelwal also advises consumers to report such cases to credit card-issuing banks.

"We may then blacklist them (the outlets) and remove our terminals." An official at another card-issuing bank adds, "It is a bad practice. If someone charges 2% above MRP, you should report it to a consumer forum, irrespective of the value."

This 2% rule, however, is relaxed for railway tickets and at some petrol pumps, says G V Giddappa, general secretary at Credit Card Holders' Association. In case a petrol pump has a tieup with a card, the amount is charged back into the card, a banker adds.

The senior banker asks, "Railways can save on the fee, but merchant establishments can't. How fair is that?" Ultimately, though, it is the consumer who gets inconvenienced and ends up paying more. Bankers say it is mostly shops with "wafer-thin" margins who charge extra to avoid additional "discount". Also, grey market shops and certain jewellery showrooms discourage card use to avoid taxes, they add. The charge works as a deterrent.
Consequently, cash purchases mean more unaccounted transactions.

Most times, shops are upfront about such a charge. However, in case a shop fails to inform the consumer or the consumer notices the charge on the payment slip, most banks do not reverse the charge. As a bank official says,
"The overcharging has been done by the merchant and not the bank."