--- MERCHANT SURVEY ON CARD PAYMENTS --- Indian Institute of Technology Bombay (August 2009)



Objective: The merchant survey on credit cards is being conducted with an objective to understand the payment system from the perspective of an India retail merchant and to try rationalizing its costing structure.

Background: In India the MasterCard and Visa rules prohibit surcharging by merchants unlike in Europe and Australia. This has been a very big issue for the merchants in various countries. In India, the card usage is increasing at more than 22% per year with last year’s transaction volume being Rs. 83,903 crore. An approach paper is under preparation and in this connection, opinions on having an appropriate system in place is being sought from all players. As is correctly suggested by RBI, for such matters, merchant participation/consultation is very crucial. It is expected that the study will be able to highlight several issues that the regulator may find useful in its endeavour towards bringing in an efficient payment system for the good of all players including the merchants and the customers.

Conduct and Coverage: This web based survey is being conducted by reaching company management and/or senior-level employees familiar with the payment methods accepted by their businesses. The survey is so designed as to achieve a representative sample of different categories of retail businesses based on company size (as measured by number of employees and annual sales) and activity.

Retailers are being asked questions regarding their acceptance and perceptions of various payment methods which primarily includes cash, debit cards and credit cards. The purpose of the survey is
  • to determine retailers’ acceptance of various payment methods
  • to estimate the share of retail sales proceeds from cash, debit cards and credit cards
  • to obtain data on the costs incurred by retailers for each payment method
  • to understand possible indirect subsidization provided by cash consumers for card consumers

The survey also addresses some of the existing rules of major credit card networks (MasterCard/Visa) and its impact on retail business. The survey aims to analyze several aspects of these rules and their behavioral and social impact on Indian merchants, including

  • the no surcharge rule (i.e., merchants are prohibited to pass the bank imposed merchant discount rate, that they incur on every card transaction, on to their customers),
  • less popularity of debit cards vis-a-vis credit cards,
  • Europe and Australia applying mechanisms to differentiate credit cards, debit cards and cash in terms of the cost associated with the payment modes,
  • inherent system in the credit cards payments which is convenient to use but forces one to take loan (and thus increase the cost of the payment).

To merchants, a credit card transaction usually costs more than the corresponding cash transaction because someone has to pay for the credit (or loan) taken while using a credit card. By not passing the surcharge, merchants allow consumers to perceive that all payment systems have the same transaction costs. This leads them to choose among the modes of payment available on the basis of one’s convenience and without giving due consideration to the costs that merchants have to bear. This usually leads to unwarranted cost pressures on the merchants necessitating adjustment in pricing structure of their merchandise.

Some merchants correctly believe that not accepting credit cards would lead to downslide of their business since consumers want to make use of their plastic money rather than carrying cash in hand. But there are alternate (though less popular, as of now, in India) plastic money which is relatively cheap for the merchants and a good substitute of credit cards, for example the (pin-based) debit cards.

Needless to say, the survey results that are expected to bring in rationalization of costing structure of the payment system cannot be completed without active support from the merchants. Your opinion is therefore very valuable to us. Kindly respond to all the questions. This will help in building opinions across the cross-sections of the retail sector. Your responses would not associate your company name at the time of collating the data. For any enquires, you may contact Prof. Ashish Das at ashish@math.iitb.ac.in.

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