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Card payment at petrol pumps: What’s the fuss about?

Each time a card is swiped, a certain percentage of the amount paid goes as charges to the company that has installed the card machine, the network provider such as Visa and MasterCard, and the issuing bank, with the average charge being 1% per transaction. Photo: Pradeep Gaur/MintPremium
Each time a card is swiped, a certain percentage of the amount paid goes as charges to the company that has installed the card machine, the network provider such as Visa and MasterCard, and the issuing bank, with the average charge being 1% per transaction. Photo: Pradeep Gaur/Mint

Here is a look at what the issue is about and what it costs you to use a card at a petrol pump

Debit and credit card issuers (usually banks) and fuel retailers have been sparring over card payments at petrol stations. Matters threatened to come to a head over the past weekend and fuel retailers initially said they would stop accepting card payments from Monday. They have since deferred this deadline till the end of this week.

Since the Indian government invalidated old 500 and ,000 denomination currency notes on 8 November, many people had moved to using cards at petrol stations. If the retailers go ahead with their threat, it will inconvenience such users.

The issue has to do with charges related to usage of credit and debit cards at petrol stations that come out of the dealer’s profit margins.

Each time a card is swiped, a certain percentage of the amount paid goes as charges to the company that has installed the card machine, the network provider such as Visa and MasterCard, and the issuing bank, with the average charge being 1% per transaction. Called a ‘merchant discount rate’ (MDR), this is the fee that merchants pay every time a card is used.

After 8 November, to make things easier for customers and to promote non-cash transactions, the government announced a 0.75% discount on card purchases of fuel. It also waived the MDR on such purchases for 50 days. With that promotional period elapsing, banks said they would reinstate the charge.

“Petrol pumps claim that their margins are so thin that they can’t pay for the transaction," said Vijay Jasuja, chief executive officer, SBI Cards Ltd.

Indeed, there’s also some confusion on who will bear the cost of the 0.75% discount announced by the government.

Even before 8 November, most banks were not charging MDR for fuel purchases . This is usually negotiated at the time the card machine is installed at the petrol station or any other merchant outlet, explained Jasuja.

It isn’t just fuel retailers that have issues with the real cost of digital payments. Customers end up paying a 2.5% surcharge on fuel purchases, although several card issuers and banks do waive this. But it was a rare bank that waived both MDR and fuel surcharge.

“Earlier the card issuing companies used to charge a lower MDR for government utility bills, railway reservations and for payment in Life Insurance Corp. of India. In case of petrol pumps the MDR was nil and banks used to levy 2.5% from customers as surcharge," said Naveen Kukreja, co-founder and chief executive officer, Paisabazaar.com.

The ongoing spat between banks and fuel retailers highlights some of the transactional issues the government needs to address as it promotes digital payments.

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