Why Shouldn't You Pay Credit Card Swipe Machine Charges In India

The use of credit cards has become increasingly popular in India recently offering consumers a convenient way to make payments without the need for cash. However, a common practice that has emerged is merchants charging customers an additional fee when they use their credit cards, often referred to as a "credit card swipe fee" or "surcharge."

But did you know that this practice, while widespread, is totally unfair in India? In this blog let us look at the reasons why you should refuse to pay these charges.

Understanding credit card swipe charges

Credit card swipe charges, also known as merchant discount rates (MDR), are fees that merchants pay to banks or payment processors for the convenience of accepting credit card payments. Typically ranging from 1% to 2% of the transaction value, these charges cover the costs associated with processing the payment, including network fees and other operational expenses. According to the Reserve Bank of India (RBI), merchants should not pass these charges onto customers, as doing so violates the terms of their agreement with acquiring banks.

When a customer uses a credit card at a point-of-sale (POS) terminal, the merchant incurs this fee, which ideally should be seen as a cost of doing business. However, some merchants attempt to recover these costs by adding a surcharge to the customer's bill, which is not permissible under RBI regulations. Such practices can lead to penalties, including the potential termination of the merchant's POS services.

Merchants benefit from accepting credit card payments by increasing sales and reducing the risk associated with handling large amounts of cash. Therefore, while MDR is a legitimate business expense, it should not be transferred to customers.

Why merchants should not charge customers for credit card swiping fees

Merchants are not liable to ask for credit card swiping charges due to several key reasons, primarily rooted in regulatory guidelines and the benefits POS systems offer to their business.

Regulatory guidelines

According to the Reserve Bank of India (RBI), merchants are prohibited from charging customers extra fees for credit card transactions. These additional fees, often referred to as Merchant Discount Rate (MDR) charges, are meant to be borne by the merchants as part of their operating costs. The RBI's directive aims to promote the adoption of digital payments by ensuring that consumers are not discouraged by additional costs.

Unfair practice

Charging extra for credit card payments is an unfair practice that penalises customers for using a legitimate and often more secure method of payment. It hinders the use of digital payment methods which is bad for India's attempts to become a cashless economy. Digital payments have various advantages including easier payment tracking, higher security and user-friendliness. A financial disincentive that undercuts these advantages is created when businesses charge extra for using credit cards, which may cause customers to return to less safe and effective cash transactions.

Legal consequences

If a merchant is found charging these fees, they can face legal consequences. Customers can file complaints against such practices with consumer courts or report them to banking ombudsmen. Legal repercussions for violating this regulation can include fines and penalties, which not only hurt the merchant financially but also damage their reputation. Furthermore, persistent non-compliance can lead to stricter regulatory actions, including potential loss of the ability to process credit card transactions.

Wrapping Up

It's crucial to stand against paying extra charges for credit card swipes in India. Not only is it unfair to consumers, but it's also against the law, as per the Reserve Bank of India's regulations. By refusing these charges and opting for compliant solutions like Kotak's POS machines, merchants can simplify their operations while ensuring fairness for customers. Following these guidelines not only supports the growth of a cashless economy but also promotes transparency and trust in digital transactions. Ultimately, adhering to these principles benefits both businesses and consumers alike, paving the way for a more equitable and efficient financial situation in India.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

But did you know that this practice, while widespread, is totally unfair in India? In this blog let us look at the reasons why you should refuse to pay these charges.

Understanding credit card swipe charges

Why merchants should not charge customers for credit card swiping fees

Merchants are not liable to ask for credit card swiping charges due to several key reasons, primarily rooted in regulatory guidelines and the benefits POS systems offer to their business.