Why some merchants charge extra when you pay via credit card instead of cash

Entrepreneurship or Small Business, Finance or Money

Some merchants, especially traditional ones (who prefer cash payment but have to accept credit card due to society trends) impose an additional 2% to 3% credit card surcharge on top of the purchase price. For example, if you buy something for RM1000, the merchant will tell you that:

  • The price will be RM1000 if you pay cash upfront
  • If you want to swipe your card, you will need to pay about RM1020 – RM1030 (2% to 3% more). The surcharge is added on part of the price of the item so it is not obvious to the acquiring bank that the merchant is charging extra.

What are the types of merchants who usually imposed the surcharge?

Generally, it is small to medium enterprise dealing with business such as:

  • Travel agent
  • Handphone/ gadgets/ computer stand alone shops
  • Jewelry
  • Electrical shops

These businesses are traditionally mom and pop shops that do not have other branches- it is usually small family business.

Many people tend to complain when they are required to fork out the surcharge just because they use the credit card. They may just sign it while at the shop but later call up their banks to complain about the charges and expect it to be reversed.

Generally, there is nothing much their credit card companies can do because on the sales charge slip, it is only a lump sum amount that the customer had signed. Merchants usually would not clearly state the extra as surcharge on he itemised bill because they know that by agreement with their banks, they are not supposed to impose any credit card surcharge.

As I have seen a number of customers complaining to Consumer boards and newspaper, I feel compelled to offer another point of view about these surcharges.

First, most of these small merchants are not able to compete with their giant store counterparts when it comes to bulk order. That being said, it does not mean that items sold by megastores are much cheaper. It may or may not be the case- even if it is, the price difference is normally minimal. Small businesses normally make it up with service.

When you walk into a traditional electrical shop for instance, you can generally negotiate a good discount if you have done your homework beforehand (you are familiar with market price) and you are buying more items.

If items are already sold to you on a discount, the merchant would generally request you to pay cash or you will have to pay for surcharge if you use credit card.

The reason given is usually due to the discount, the merchant is already having a low profit margin, so they have to pay service charge to the acquiring bank and your credit card company, there isn’t much profit left.

So, you gotta give the poor guy a break- after all, traditional businesses are really suffering and many have closed down because they cannot compete with the giants in variety and bulk orders. But they usually make up with good service.

All of us want to get the best deal and the most of out our dollars spent. Of course, if you walk in to any hypermarkets today like Carrefour and Tesco, you can sometimes get huge items sold for mere pennies- especially perishable goods.

Often, it is a marketing tactic to attract more shoppers to the place by offering certain items at a good discount.

We all know that we don’t only buy those items on discount when we drive all the way there. Usually, our trolleys will be filled to the brim with other items that are not the cheapest- but since we are there, we might as well buy other items. That’s how hypermarkets can really make money. At least that’s what I noticed when I observe most shoppers to visit the hypermarkets during the weekend.

Back to these traditional merchants- please pause and think for a second why surcharge is necessary on the items that you know you have bought at a good bargain. For me personally, when I need to get electrical items, I do not buy from chain stores but from a traditional electrical shop.

From past experience in buying cheap unknown China made electrical items from hypermarkets and having it spoil in no time, I believe that we just can’t be stingy when it comes to electrical appliances. The shop that I go to offer me a good comparative market price- but what kept me going back is the service and the knowledge of the owner and his family.

I remember when I bought a refrigerator few years ago, the owner asked me some questions about my lifestyle. Now, you have fridge that have 2 doors, those that provide cold water and the vegetable compartment that is on the top instead of at the bottom.

He told me that as we do a lot of cooking in the house, it is more practical to have the fridge where the vegetable compartment is at the bottom- because we would store more vegetables and it would be heavier. He also recommend that I buy the type of fridge I need instead of those with lots of bells and whistles but not much additional value.

At the end, he offered a discount but on the condition that pay cash. If I want to pay credit card, he told me that he would regrettably need to charge me additional surcharge.

Out of curiosity, I went over to the hypermart Carrefour and compared the price of the same fridge. Now, Carrefour even have easy payment scheme when I charge my credit card. That means that the purchase price will be deducted upfront from my card but my bank will charge me in monthly installments with free interest.  But what they are lacking is staff with product knowledge. And you know what?

After calculating the charges, it is cheaper if I were to buy from the traditional shop using my credit card with the surcharge than buying from Carrrefour. And when I got the fridge delivered to my house, the shopowner even agreed to have my old fridge carted away at no extra cost.

Therefore, the next time you find that you are being imposed with the surcharge, you may want to consider doing a little price comparison before getting upset and filling a complain on the merchant.  Even with easy payment schemes, you may stand to save more even if you pay with your credit card upfront together with the surcharge.

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