Why do banks levy surcharge?

[FinoGuy]

Hi TFians!
Why do banks levy surcharge for these transactions?

1. FUEL transactions
2. Railway transactions (irctc)

Inspite of getting mdr from merchant, y do they levy extra money from customer in the form of surcharge?
(Levying service charges on cash withdrawal from atm is understood but I wasn't sure about other surcharges)

 

[HumorSimpson]

@S S V yes yes we

 

[FinoGuy]

@S S V yes yes we

Damn the 3 word rule! 😀
It's a real torture to be Frank!

 

[NShah]

@VISHESH_BANSAL kuch tippni kijiye is vishay par

 

[VISHESH_BANSAL]

@VISHESH_BANSAL kuch tippni kijiye is vishay par

Bhaiji m toh without surcharge Txns karta hu except at Govt Portals😝

BTW, Surcharge is charged by Acquiring Bank i.e, the Bank which is Providing POS Terminal not the Card issuer Bank.

Railway Surcharge, Fuel Surcharge and Govt Services Surcharge are Industry Standard.

One of the reason may be, Due to Low Margins, they are allowed to take Surcharge at the time of txn settlement.

 

[Strange]

Hi TFians!
Why do banks levy surcharge for these transactions?

1. FUEL transactions
2. Railway transactions (irctc)

Inspite of getting mdr from merchant, y do they levy extra money from customer in the form of surcharge?
(Levying service charges on cash withdrawal from atm is understood but I wasn't sure about other surcharges)

A surcharge is an additional fee that a bank or a merchant charges on top of the regular transaction amount. It is usually a percentage of the transaction value or a fixed amount, whichever is higher. Surcharges are different from taxes, which are collected by the government.

There are various reasons why banks levy surcharges on certain transactions, such as:

- To cover the cost of providing the service or facility, such as card processing, online payment gateway, etc.
- To discourage the use of certain payment methods that are expensive or risky for the bank, such as credit cards, international cards, etc.
- To earn extra revenue or profit from the customers or merchants.

Some of the common transactions that attract surcharges in India are:

- Fuel transactions: Banks charge a surcharge of 1% on all credit cards and from 0.25% to 1% on all debit card transactions done at petrol pumps. This is because the fuel prices are regulated by the government and the margins for the petrol pump owners are low. Hence, they pass on the cost of card acceptance to the customers through surcharges.
- Railway transactions: Banks charge a surcharge of 1.8% on all credit cards and 0.65% on all debit cards for transactions done on the Indian Railway Catering and Tourism Corporation (IRCTC) website. This is because the IRCTC is a government entity and does not pay any merchant discount rate (MDR) to the banks for facilitating online bookings. Hence, the banks recover the cost of card processing from the customers through surcharges.
- Income tax Individuals who have an income above Rs. 50 lakh have to pay a surcharge on their income tax, in addition to the health and education cess. The rate of surcharge varies from 10% to 37%, depending on the income bracket. This is because the government wants to impose a higher tax burden on the higher income earners and redistribute the wealth to the lower income groups.


Source:
(1) Fuel surcharge levied on petrol pumps: 3 things to know while using .... https://www.financialexpress.com/mo...to-know-while-using-debitcredit-cards/501615/.
(2) Surcharge on Income Tax : Surcharge Fee, Calculation & Marginal Relief. https://www.paisabazaar.com/tax/surcharge-on-income-tax/.
(3) Reserve Bank of India - Press Releases. https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=57006.
(4) Surcharge on Income Tax - Tax Guru. https://taxguru.in/income-tax/surcharge-income-tax.html.

 

[SSV]

Hi TFians!
Why do banks levy surcharge for these transactions?

1. FUEL transactions
2. Railway transactions (irctc)

Inspite of getting mdr from merchant, y do they levy extra money from customer in the form of surcharge?
(Levying service charges on cash withdrawal from atm is understood but I wasn't sure about other surcharges)

@S S V yes yes we

I am not long enough in India to know the history and background of introduction and levying of Fuel surcharge
But going by common sense..
Fuel price is regulated by central government and thenpricin is very transparent to the public on a daily basis and fixed in nature for the effective period of time.
To cover the direct/ indirect costs of maintenance of this digital money someone has to bear this cost.
As margins are very thin for Petrol stations , they want to pass on this costs to the customers as banks were not willing to budge.. even these surcharges are also regulated by RBI it seems..
So basically it’s because of the highly govt regulated pricing of the product involved, they came up with solution of levying surcharge as a middle way between Banks and petrol bunks as Government wants to encourage digital payments I.e. cashless society.. ultimately consumers have to bear the costs involved in this utilisation of cashless system in petrol bunks..

 

[card-shard]

Usually every transaction has MDR applicable. However private businesses are run for profit, and have decent profit margins, they are told by law to only charge MRP (they hv to factor in MDR charges within their MRP). Thus MRP is charged on your card, MDR is paid by the business owner.

However govt related entities are not FOR-PROFIT, they are either already loss making or have razor thin margings, thus they can't absorb additional MDR fee as well. In such cases, banks have to collect MDR in the name of surcharge/convenience fee for GOVT related payments from end users.

 

[sidpsidp is verified member.]

Hi TFians!
Why do banks levy surcharge for these transactions?

1. FUEL transactions
2. Railway transactions (irctc)

Inspite of getting mdr from merchant, y do they levy extra money from customer in the form of surcharge?
(Levying service charges on cash withdrawal from atm is understood but I wasn't sure about other surcharges)

There could be many reason. One is low margins.
Another is that mdr for bigger merchants are much lower. Irctc is a monopoly. Indian Oil market is oligopolistic. So they have much higher bargaining power.
You also have to take into consideration Indian govt's history of license Raj, and still prevalent socialistic structure for political reason where govt Directly/indirectly owns major Part of these companies. And cards were considered as the preferred payment option for privileged.so instead of absorbing these charges, they are passing on to end user.

As cc captures more customers and becomes default preffered option, these charges will vanish. Though due to govt decision to keep upi free, that day won't be coming soon.