How Tanzania's No-Charge POS Policy Impacts Merchants and Consumers

The Bank of Tanzania (BOT) has eliminated charges on card payments at Point-of-Sale (POS) machines to promote digital payment adoption and foster a cash-lite economy.

This policy applies to debit, credit, and prepaid card transactions at merchant POS terminals and aims to enhance financial inclusion, security, and transparency. While this initiative may encourage consumer trust by prohibiting surcharges, it also raises concerns about potential impacts on merchants and pricing structures.

Merchants face significant costs when accepting card payments, primarily due to interchange fees, which constitute 70% to 90% of total payment processing costs.

These fees often influence how merchants price their goods and services. For instance, merchants may embed these costs into product prices, impose minimum purchase requirements for card use, or even restrict the acceptance of certain cards with high fees.

This practice is particularly burdensome for small businesses with low profit margins, as they lack the bargaining power to negotiate lower interchange rates compared to larger businesses with higher transaction volumes.

The disparity in transaction costs between small and large merchants highlights a fairness issue in the payment system. Small merchants often pay higher fees and may discourage card use or adopt practices to offset processing costs.

This can deter smaller businesses from fully embracing digital payments, especially if the perceived benefits—such as increased sales or operational efficiency—do not outweigh the financial burden.

For consumers, no-surcharge rules might lead to higher retail prices across all payment methods as merchants adjust prices to cover transaction costs.

To address these challenges, introducing a low-cost payment system with uniform fees across businesses of all sizes could promote fairness while encouraging digital payment adoption. While cash currently offers a low-cost alternative, it lacks the convenience and security of digital methods.

A balanced approach that reduces cost barriers for merchants while maintaining consumer trust is essential for achieving a sustainable transition toward a cash-lite economy.