As a credit card holder, you may have come across terms such as credit card surcharge and convenience fee. But, it is easy to confuse these two terms. There are distinct differences between a credit card surcharge and a convenience fee.
What is credit card surcharge
A credit card surcharge is an additional fee that a merchant charges to customers who choose to pay by credit card. This charge is usually a percentage of the transaction amount and can vary between merchants. For example, if you purchase a product worth Rs. 1,000 and the merchant charges a credit card surcharge of 2%, you will have to pay Rs. 1,020 that includes a surcharge of Rs. 20.
The Reserve Bank of India (RBI) allowed merchants to impose a surcharge following a 2012 amendment to Payment and Settlement Systems Act. According to the amendment, merchants are permitted to charge a maximum surcharge of up to 2% on credit card transactions.
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What is convenience fee
A convenience fee is an extra charge levied by a merchant when you use a credit or debit card to pay instead of cash. This fee helps cover the cost that the merchant incurs to process card payments. It is typically a flat fee rather than a percentage of the transaction amount. The fee depends on the value of the convenience service provided to the customer.
For example, when you buy something online and pay using your credit card, you might see an extra charge added to your bill. So, if the product costs Rs. 500, you might end up paying Rs. 530 after the convenience fee is added. This fee is typically a flat fee rather than a percentage of the transaction amount.
The Reserve Bank of India (RBI) has established guidelines for convenience fees. These guidelines restrict how much merchants can charge for such services. The fee should be reasonable and match the value of the convenience service provided to the customer. Additionally, the convenience fee must be fixed upfront and should not depend on the value of the transaction.
Difference between credit card surcharge and convenience fee
In essence, the main difference between a credit card surcharge and a convenience fee is the purpose for which they're charged. Credit card surcharges are essentially costs of processing a credit card transaction and are not related to providing a specific service to customers. In contrast, convenience fees are charged to compensate for specific and additional services that a merchant offers to customers, for which extra costs are incurred.
Knowing these differences can help you understand and manage your finances better while making online or offline purchases using your credit card.
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