Many credit card users face a familiar situation when making expensive purchases at shops: the merchant asks them to pay an additional 2% on the total bill for using a .
But do customers actually have to pay this extra amount?
The answer is not as straightforward as it may appear. The Reserve Bank of India (RBI) has stated that it has not issued specific instructions regarding the levy of charges on credit card transactions. Card payments are also governed by agreements between merchants, banks, payment providers and card networks.
Why are shops asking for extra 2%?
When a customer pays by , the merchant generally incurs a fee for accepting the payment. This cost is commonly known as the Merchant Discount Rate (MDR).
The entire transaction amount does not simply go from the merchant to the customer’s bank. Card payment processing involves several participants, including the card-issuing bank, acquiring bank or payment provider and card network, with the associated costs distributed across the payment ecosystem.
Some merchants try to recover these expenses by adding a percentage to the customer’s bill.
Therefore, when a shop demands an additional 2% for a credit card payment, it is generally attempting to transfer some or all of its card-acceptance cost to the customer.
The RBI has specifically clarified that it has not issued instructions on the levy of charges on credit card transactions.
However, agreements between merchants and their banks, payment providers or card networks may contain rules governing whether such costs can be passed on to customers. If a shop asks for an additional payment, customers can question the charge and, if necessary, raise the matter with their card issuer.
Debit card charges follow different rules
Customers should not assume that the rules applicable to credit cards also apply to debit cards.
The RBI has issued specific directions covering MDR on debit card transactions. Under its framework, banks and payment participants are required to ensure that merchants do not pass debit-card MDR on to customers.
Therefore, even though a debit card and credit card may be processed through the same payment terminal, the regulatory position for the two types of cards is different.
Is a convenience fee the same as a card charge?
Customers may also see a convenience or service fee, particularly when booking tickets or paying for certain services online.
This should not automatically be treated as the same as a merchant adding a separate “credit card charge”. The RBI’s directions state that convenience fees applicable to specified transactions should be disclosed transparently before the transaction is completed.
Its rules for payment aggregators also require charges other than the price of the product or service to be clearly displayed before payment.
Consumers should therefore check the final amount carefully before entering their PIN, tapping their card or approving an online transaction.
What should you do if a shop adds a surcharge?
Before making the payment, ask the merchant what the additional amount is for. Also, check the final bill and payment amount so that the surcharge does not come as an unexpected cost after the transaction.
If you believe you have been wrongly charged, you can first raise the issue with the merchant and your card issuer.
The RBI says that if a cardholder is dissatisfied with the issuer’s response, or does not receive a response within one month, they can approach the RBI Integrated Ombudsman Scheme.
Don’t accept unexplained ‘card charge’
The simplest approach at the billing counter is not to automatically accept an unexplained surcharge.
Ask the merchant what the extra amount represents and verify the final payable amount before you tap, swipe or enter your PIN. Knowing what you are being charged for can help you avoid unnecessary costs and take appropriate action if you believe the fee has been wrongly imposed.