HYDERABAD: Paying school fees online came with a hidden cost for the parents who learned digital payments the hard way. During the Covid-19 pandemic, several schools conducted online classes and asked the parents to use the digital payment system to pay the tuition fees. One parent realised that the school was charging Rs 70 more for opting to pay the tuition fee online. According to the bilateral agreement between the card-issuing bank and merchants, the latter has to pay a percentage of the transaction as rental fees to the bank for using its point of sale (POS) machine and platform.

As per RBI, merchants charging about 2% more than the actual bill to customers is not permissible and not justifiable. The merchants are expected to bear this extra fee, but there are some instances where the 2% amount is being passed on to the customers. Since the merchants have agreed to bear this expense, the incident should be reported to the card-issuing bank. After due investigation, the merchants could be blacklisted.

The extra fee, which is called Merchant Discount Rate (MDR), is the fee paid by the businesses, merchants and others to the card-issuing banks for facilitating digital payments. The merchants say the banks charge them about two to three percent on the transaction value, sometimes they absorb this to maintain customer relationships, at other times they charge the customer owing to the size of the transaction and bargaining they do while making purchases. When you use your card at the fuel station, an extra fee is charged, however, the amount gets credited back to the account within two to three days.

During the calendar year 2018 and 2019, for transactions up to Rs 2,000, the government had made MDR zero for the merchants and provided banks monetary support towards it. To promote digital payments, Finance Minister Nirmala Sitharaman said no Merchant Discount Rate (MDR) charges will be applicable on transactions through homegrown RuPay and UPI platforms beginning January 1, 2020. On the other hand, banks were allowed to impose MDR on the merchants for every transaction using Mastercard/VISA debit cards.