Why shopkeepers ask for 2% extra when paying with card


Whenever you use a Debit Card or a Credit Card for making a purchase, there is a certain cost that the bank will have to bear for processing your transaction request. The network has to be fast and robust so you don't have to wait a long time. There is also the cost of making and running the swipe machine. If the banks started charging the customers for this, then it would discourage the use of cards and people would stick to cash. So instead they charge the merchant/shopkeeper. This is what the merchants usually have to pay:
Debit Card 0.25 % to 1% of Transaction value
Credit Card - VISA / MasterCard 1.5% to 2.5% of Transaction value
Credit Card - American Express 2.5% to 3.5% of Transaction value
Swipe Machine 400 - 1000 Rs / Month
  Charges are higher for Credit Cards as the bank also has to recover the cost of lending money to the customer. However, all banks and credit card companies encourage Shopkeepers/Merchants to bear this cost and not ask customers for any extra amount when paying through cards. The thought behind it is that accepting cards brings in more sales. Some people will prefer to pay with a card simply because of reward points or cash back or because they don't like going to the ATM every few days and prefer using their card wherever possible.     Of course, every merchant understands this and they know that by charging extra they are making the customer unhappy.

So why do they charge extra?

It's usually one of two reasons.

  1. Some Merchants don't associate a cost with collecting cash; which is incorrect. Cash needs to be kept secured and monitored at all times, it needs to be deposited to the Bank regularly and cash sales need more accounting effort. There’s also the issue of theft with cash.
  2. The cost is actually really high in some cases. This is especially true for merchants with small margins. Let’s Say you spent 1,000 Rs at a Store and the merchants cost price for those items was Rs 800. You pay by card on which he is charged 2%. This 2% is on the total sale. So he is paying 20 Rs (2% of 1000) on his margin of Rs 200. That's effectively 10%. It cost him 10% more to accept cards than if he got cash. That’s ridiculously high. Credit Card fees have become so high because there are so many intermediaries and the entire system depends on expensive hardware.

This is why we created GalaxyCard. GalaxyCard is the first, truly digital credit card. It completely eliminates the need for any PoS / Swiping machine and gets rid of the multiple payment processing intermediaries. Payments made through the GalaxyCard Network are direct and allow Merchants to cut down commissions by up to 50%. Sign up for GalaxyCard now and get an Instant Credit of Rs. 10,000 Apply Here