Wednesday, August 6, 2014

Should I Pay Transaction Fee On My Credit/Debit Card Transactions?

A couple of days back, there was an article about the new "RuPay" card and payment system that is gaining popularity (slowly of course) in India. One of the blog readers had sent me an email yesterday saying that he doesnt really use his Debit or Credit card much because merchants charge him a small fee everytime he uses his card, and that he felt this RuPay is going to be yet another drop in the ocean. Are you someone who has faced this problem? If so, you might want to read this article...

Why a Merchant Charges us a Fee!!!

Before we go into the details and understand why the merchant is not supposed to charge us any fee, let us first understand why he charges us that fee. Let us say that you go a shop in a mall near your house and buy a new shoe for Rs. 1499. If you pay cash, you just pay the money and the shop-owner gets the full 1499. However, if you pay using your credit or debit card, the shop-keeper will get somewhere between Rs. 1450 and Rs. 1499 depending on which card (Visa, Master, Amex, RuPay etc) you use. In order to offset this loss, shop-keepers ask the customer to pay this amount as a fee. So, he would say, if cash it is Rs. 1499/- and if credit card your amount is Rs. 1538/- (added 2% or Rs. 30 as fee)

What this means is that, on the part of the merchant, it is an unfair practice to charge customers this fee. The merchat is supposed to bear this charge. 

How much does the Merchant Lose by means of this fee?

The fee is different for credit and debit cards. 

If you pay using a Debit card the fee is:
  • 0.75% for transactions up to Rs. 2000
  • 1% for transactions above Rs. 2000 

If you pay using a Credit card the fee is usually in the range of 2% to 4% depending on which brand card you are using. 

Is it Legal for Merchants to charge me for using a Credit or Debit card?

No, it is not. As per the latest regulations from RBI it is Illegal for the merchant to charge you any fee for transactions that you pay using your credit or debit card. 

In September 2013, the RBI Issued a circular to all banks and to the public that, Merchants charging customers for paying using their credit or debit card is unjustified and not permitted. In fact, it even instructed banks to cut ties with such merchants who actually charge fees on customers...

What are my Options if my Merchant is insisting that I pay the fee?

Firstly, you are absolutely right to demand that the merchant accept the transaction payment using your credit card or debit card without any additional fee. However, if they insist tell ask them to show you the ruling or regulation that allows them to charge you this fee. Tell them that as per your bank, these transactions should not be charged on you. If he still insists that you pay the fee, you can tell him that you are not interested and will find a different shop that doesnt charge you this fee. 

In all probabilities the merchant would agree to your demand and allow you to pay via credit/debit card without any fee. After all, losing 20 rupees as transaction fee is better than losing 2000 rupees worth of business. 

In the worst case scenario, the merchant refuses to do business with you, dont budge. Just leave the shop and file a formal complaint against the shop with your card issuing bank. They would most likely penalize the merchant. 

Some Last Words:

Remember the article a few days ago titled "How to be a Responsible Citizen"? One of the reasons why businessmen are able to hoard huge amounts of blackmoney is due to these cash transactions. Let us be responsible citizens and exercise our right to use our personal debit or credit card. If a shop owner doesnt want to do business with us just because we want to use our credit or debit card, its a loss for him not for us. We can always find a shop that doesnt penalize us for using our card. 

Happy Card Usage!!!

Remember - As a customer, this is our right and there is nothing wrong in not doing business with a shopkeeper who wants to charge you for just using a card. Most likely, cash transactions will go underground as black income and


  1. Dear Anand,

    This is an excellent blog that you have created. I tried making lic payments using credit card and they are charging me service fee for the same. If the government owned LIC is doing this, to whom shall we complain? please advise.


    1. You can try to complain to LIC's customer care but am not sure how much effective it would be. Though handling a card transaction is much easier than a cheque or cash payment, legacy players like LIC still insist on charging us for payments.

      I use online banking to pay lic bills using my credit card and that is free. So, maybe you can try that.


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