Card payments: Merchants overcharging customers
Merchants charging about 2% more than actual bill to customers is not permissible, says RBI
Hyderabad: Amid the pandemic, schools have opted to conduct classes online and opened up payment channels for fee collections including via credit and debit cards. But that proved costlier to parents. In a local school, if the average monthly fee is about Rs 3,600, the parents need to pay about Rs 70 more for opting to pay online.
In the banking world, this is the Merchant Discount Rate (MDR), the fee paid by shops, businesses, merchants and others to the card issuing banks for facilitating digital payments.
While the merchants are supposed to bear this expense, there are some instances where the amount (about two per cent more than the actual bill) is passed on to the customers. According to RBI, such extra fee is not justifiable and not permissible as per the bilateral agreement between the acquiring bank and the merchants. The incident should be reported to the card issuing bank. The merchants run a risk of getting blacklisted by the bank for overcharging.
Prevalence
Some merchants, mostly small and medium sized, are charging about two to three per cent over and above the bill amount. The other option they give is to pay in cash or through a scan-and-pay or not buy from them.
“The banks charge us about two to three per cent on the transaction value. Since the commodity prices are subject to fluctuation, we tend to pass on this two or three per cent banks charge to customers. Of course, there are times we absorb this to maintain customer relationships and is subject to the size of the transactions and bargaining they do with us. The price will be less for those paying in cash,” explained a jeweller.
Card payments also attract a fee when used at fuel stations. However, that amount gets credited back to the accounts in two or three days. Also, it is a practice at some liquor stores to charge about two to three per cent. However, it is not present at all stores. This trend of charging the card users more than the bill amount is mostly seen at physical stores and some service providers. It is not seen among the large, organised players as well as the e-commerce entities.
Why the fee?
The card issuing banks and merchants are in a bilateral agreement. As per this, the merchant agree to pay percentage of the transaction as rental fees to the bank for using its point-of-sale (POS) machine and platform.
Costs of business
Acceptance of cards is a combined credit, debit, pre-paid card acceptance product. The MDR for credit cards is not regulated and is an expensive proposition for small merchants. Ideally, these charges are to be borne by the merchant as these should be seen as costs of running the business. Also, they are getting a convenience of taking payments through a POS and are selling more than what they would have with only cash purchases. The merchants are assured of getting their money immediately after the transaction is approved. This alone should be enough motivation for the merchants to not charge extra for customers opting to pay using the PoS machine.
Regulatory framework
To promote small ticket debit card merchant transactions up to Rs 2,000, the government, during the calendar years 2018 and 2019, made merchant discount rate (MDR) zero for the merchants, and provided banks monetary support towards MDR at the rate of 0.4 per cent. Effective January 2020, the Government made MDR zero for transactions using RuPay debit cards alone. Neither merchants nor the Government paid the banks any MDR for such RuPay-based merchant transactions.
However, banks were allowed to impose MDR on the merchants for every transaction using Mastercard/VISA debit cards. The Government has decided to extend financial support for digital payment infrastructure in 2022-23 for homegrown payments platforms — Unified Payments Interface (UPI) and RuPay. It has rolled out a scheme worth Rs 1,300 crore to reimburse a certain percentage of the value of person-to-merchant (P2M) transactions done through RuPay debit cards and BHIM-UPI.
BHIM-UPI is promising to be an equivalent, simple, convenient, and secure digital alternative that does not cost the merchants anything under extant laws. The BHIM-UPI volumes have consistently increased while the debit card transaction volumes are showing signs of decline. Currently, BHIM-UPI is hitting close to 13 crore daily transactions, as against less than one crore for debit cards.
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