COVID-19 pandemic has lent an unprecedented push to digital banking transactions in India. In the process, digital payment channels like mobile banking, e-banking, credit & debit cards, point of sale machines, electronic funds transfer through National Electronic Fund Transfer (NEFT) & Real Time Gross Settlement (RTGS) etc. are fast becoming the preferred mode of payment channels. The use of electronic channels to make cashless payments is not now confined to urban or semi-urban centres, but people in rural pockets have been now extensively using cashless mode to make payments in their day-to-day business activities. Overall, small value household transactions are taking place in large volumes through electronic mode.
However, going digital doesn’t mean customer convenience alone. Banks too have been garnering a lot of benefits in the way of technology. Digital payment platform has reduced the cost of transactions drastically for them and has helped the banks to generate revenue through these multiple channels. Besides, digitization has considerably reduced human error and has simultaneously enabled a strong reporting system of each and every transaction.
Even as people have been taking route of electronic channels on a large scale to make payments, especially during the ongoing Covid crisis, incidents of unethical and illegal practice at the hands of merchant establishments (shopkeepers) have become rampant. Precisely, at the moment, it’s the cost at which digital transactions are made available to the consumers which has surfaced as a major stumbling block for many to embrace electronic way of transactions.
Let’s today specifically talk about issues confronting payments made through credit/debit cards. Basically, many readers have been asking about charges to be paid while swiping a card for making payment against purchase of goods and services at a merchant establishment or shopkeeper. Most of them have been forced by the shopkeepers to pay the charges. Most of the cardholders vomit anger against their card issuing bank. They say the banks while issuing the card didn’t mention that the cardholder has to pay a certain percentage as commission to the merchant while making purchases through these cards.
I am sure, being a regular user of debit/credit cards for shopping, every one of us once in a while, have been asked to shell out an extra 1% or even 2% while swiping cards at a POS (Point of Sale) machine at a merchant establishment. Before deliberating upon the issue of why merchants/ shopkeepers do this, what you need to know is that this practice is definitely illegal and that there are RBI regulations that allow penalising such merchants/shopkeepers.
Do you have to pay commission on goods and services purchased through a debit/credit card? What is the percentage which one has to pay more?
To put things straight, a debit/credit card holder does not need to pay any commission to the merchant/shopkeeper while using cards for making purchases. Demanding this kind of ‘commission’ from the cardholder is unethical as well as illegal. However, the onus lies on the cardholder. If he faces such a situation, he should refuse to pay such a commission.
This is an unfair trade practice because merchants already have agreed in the agreement with the card swiping machine bank that they will not charge anything extra from the customers. A notification issued by the RBI says that merchants/shopkeepers cannot charge any extra charges from customers, if payment is done through cards.
Let me share what the RBI says in this regard. “…merchant establishments levy a 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…”
Besides, the guidelines state that any such instance can provide reason to the bank to terminate its POS-linked relationship with such merchants/shopkeepers.
Why does a merchant or shopkeeper ask cardholders for such ‘commission’?
When a cardholder swipes a debit/credit card on the PoS machine to make payment against the purchases, the merchants have to pay some fees (1%-2%) to the Bank or the rental fees for the PoS machine. These charges are to be borne by them as the cost of running the business and availing the convenience of taking the payments without hassles. On one hand, they feel burdened to pay these charges and on the other, they want to retain the facility for customers as payment through cards has been surging. Amid this dilemma, the merchants pass on these charges to the customers and force them to pay some percentage of the bill amount as commission for using cards for payment. If a customer refuses to pay the commission, they ask him/her to pay by cash and even guide them to a nearby ATM. If any customer argues, they wrongly justify the charging of commission by stating that the amount goes to the bank.
If a bank charges the merchants for PoS facility, why are merchants wrong to ask customers for extra amounts while making payment through cards?
See, there are no freebies in business. The banks are offering their products and services to their customers at a cost. Point of Sale (PoS) machines are one such facility which enhances the business environment of a merchant establishment. Over a period of time, the electronic mode of payment has become the preferred mode to conduct financial transactions. People do not generally carry a large amount of cash when they go out to make purchases. In this scenario, PoS works to a merchant’s advantage. If credit/debit cards have enhanced the purchasing power of the cardholders, it’s the PoS facility at a shop which makes the merchants capitalize on the cardholders’ enhanced purchasing power and sels more than what it would have with only cash purchases. Precisely, having a PoS machine is in the best interest of the merchant. When a customer uses cards, the merchant is assured of getting his money immediately after the transaction is approved. And the merchant gets the amount directly credited into his account, which means he is absolved of storing the cash at his shop and then engaging a person to get it deposited in the account. In other words, the merchant saves time by offering PoS facility to his customers and helps him to garner more business during the day.
So, it’s not justified for a merchant to charge customers for using the PoS machine. Merchants need to understand that they are utilizing the facility for their own business convenience alone and bank charges are justified for such a facility. It’s unethical, rather illegal to ask customers to pay for a facility which they avail to run their business.
What should a cardholder do, if the shopkeeper insists on paying extra charges?
When any shopkeeper or a merchant asks you for extra charges on making purchases through cards, file a complaint against him to the bank. The RBI has asked all the banks to break their relationship with those merchants/shopkeepers who are forcing customers to pay this commission.
However, it has been observed that most of the time customers shell out this commission and avoid confrontation with the merchant. This way such cardholders are lending support to such merchants to flourish this unethical and illegal practice of charging ‘commission’ on purchases made through credit/debit cards. It requires some time and effort from the side of customers to end this practice.
Last, but not the least. Banks also need to gear-up their surveillance mechanism where they can reprimand the merchants misusing PoS facility. They should terminate their relationship with them if they fail to fall in line with the stipulated guidelines in this regard.