Stop being overcharged!

In India, most of us have found ourselves dealing with a local store owner who demands a surcharge if you decide to pay by card. Should you cave in, and if so, then why?

They're NOT doing the right thing. Some of them are greedy for these menial margins. In other cases, they do so because they’re poorly informed. The small volumes/traditional merchants in India also manage to do this because most customers don’t challenge them often. When they do so, they are violating the merchant agreement they’ve signed with Visa/Master/AmEx.

What's crazy though is that some large retailers, big brand car dealerships and reputed electronic stores sometimes act equally brazen in their attempts. So what do we do?

Every merchant agrees to pay a percentage of the transaction value at POS as “discount fee” under the merchant agreement. This fee varies between Visa, Master & AmEx. Visa/Master are known to charge between 1.5 to 2 percent, while AmEx could charge as high as 3 percent. AmEx justifies the high discount fee with the data logic that their customer are generally HNI who tend to spend a lot more than the typical customer in possession of a Visa/Master Card.

The merchants do not need to make a payment for this. They get the money in their account settled with the deductions done already. For example, if you pay a merchant INR 100 using your card, (assuming discount fee as 2% in this example) the merchant would get INR 98 in his/her account in the next settlement cycle from the payment processing company.

The merchant agreement signed between the business owner and Visa/Master/AmEx stipulates that the merchant should not discriminate against a card payment by charging anything additional over the actual cost of the product/service offered. I am going to include the relevant links from the merchant agreements / guidelines / rule-books of these 3 major payment processing companies below:

(A) - Mastercard: Refer to the link - Mastercard Rules for Merchants & Processors. They offer a PDF file you can download for the rules to be followed by the merchants. Under section “5.11 - Prohibited Practices” sub-section “5.11.2 - Charges to Cardholders” it says:

A Merchant must not directly or indirectly require any Cardholder to pay a surcharge or any part of any Merchant discount or any contemporaneous finance charge in connection with a Transaction. A Merchant may provide a discount to its customers for cash payments. A Merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used, or as the Corporation has expressly permitted in writing.

For purposes of this Rule: A surcharge is any fee charged in connection with a Transaction that is not charged if another payment method is used.

The Merchant discount fee is any fee a Merchant pays to an Acquirer so that the Acquirer will acquire the Transactions of the Merchant.

(B) - Visa: This one isn’t difficult to find. It on the website itself - Accepting Visa Cards. It says:

Do not set minimums and maximums, and do not surcharge

You should not set value limits or impose a surcharge as a condition for accepting payment by Visa cards. Doing so can damage your relationship with your own customers and you may also lose new sales opportunities. Visa's research has shown that many cardholders won't do business with merchants who require minimum purchases on their Visa cards.

(C) - American Express: It’s all mentioned here https://www.americanexpress.com/...

Please refer to Section “2. ACCEPTING THE CARD”, sub-section “C” that says:

Honouring the Card: You must not, directly or indirectly, (i) try to dissuade Cardmembers from using the Card; (ii) criticise or mischaracterise the Card or any of our services or programs; (iii) try to persuade or prompt Cardmembers to use any Other Payment Products or any other method of payment (e.g., payment by cash); (iv) promote any Other Payment Products (except your own card that you issue for use solely at your Establishments) more actively than you promote the Card; (v) make Cardmembers feel unwelcome or embarrassed if they wish to use the Card, (vi) charge the Cardmember any additional fees or increase your price; (vii) engage in activities that harm our business or brand; or (viii) impose any restrictions or conditions on the use or acceptance of the Card that you do not impose equally on Other Payment Products, or otherwise financially discriminate against the Card or Cardmember.

So, now you know it all!

But the problem just begins here. Having worked for AmEx a couple of years ago, I knew all this. I could still not convince most of the small merchants I dealt with, to not ask me for a surcharge. They’re not well informed/educated about the policies in most cases. Further, they get emboldened by the fact that most people (including me) do not report their acts to the payment processors (for the apparent lack of time, and interest in this issue) and instead decide to buy from somewhere else or pay in cash.

There are also times when I get ticked off, and decide to complaint. In the last 10 years, I’d have reported over a dozen cases like this to AmEx in India - and the merchant decided to step back on the surcharge request almost immediately.

So go ahead, take the fight to the POS!