There’s hidden cost in cash transactions

I REFER to the letter “Surcharge defeats intent of cashless society” ( The Star, Nov 13). I wholeheartedly agree with the writer on this matter and feel that all banks should be more proactive in stopping their merchants from imposing credit/debit card surcharges when customers use their credit or debit cards.

Based on The Payment Card Reform Framework issued by Bank Negara, which can be accessed on its website, all banks are required to reduce the cost for merchants to accept payments via credit and debit cards through the implementation of declining merchant discount rates (MDR). The payment card interchange fees are reflected in the MDRs that must be paid by merchants.

As of now, the interchange fee for home brand debit cards is 0.15% or “50 sen + 0.01%, whichever is lower. On the other hand, the interchange fee for credit cards is 1.10%, and would be reduced to 0.48% from Year 2021.

If unscrupulous merchants impose a 2% or more surcharge for credit cards, not only are they passing down the interchange fee to the customers but they are also unethically gaining profit from credit card transactions.

From the merchants’ point of view, the 1.10% of interchange fee to be paid to the bank may seem a lot and would dent their profit margin. Imposing surcharges for credit and debit card usage is likely to lead to customers paying the merchants by cash. Some merchants may perceive, wrongfully, that accepting cash as a form of payment is free of charge.

In many cases, the premises where the merchants conduct their business may be far away from the bank in which they have their business current account. At the end of each business day, the cashiers are entrusted by the merchant to travel to the bank to deposit the proceeds of the day. Normally, the merchants do not reimburse the cost of travelling (such as petrol consumed and time wasted) to the cashiers.

What would happen if the cashiers are robbed before they can deposit the cash or cheque in banks? The merchant would quickly place the blame on the innocent and hapless cashiers and instruct them to repay the stolen cash. So, in their bid to save on the interchange fee, the merchants are taking the risk of losing the entire proceeds of the day.

Since there are hidden fees to be paid by merchants in accepting cash, paying the interchange fee may well be a more cost-effective and safer solution. Given the highly sophisticated and modern electronic payment system we have these days, it is actually very convenient for the merchants to obtain their proceeds paid by customers via credit or debit cards. When the merchants perform settlements on their credit card terminals at the end of their business days, the acquirer bank (which supplies the credit card terminals to the merchants) will release the payment to their merchants on the next working day. It is much safer, and the amount is contained in the business current account of the merchant.

Bank Negara and all banks in Malaysia should play a more active role in ensuring their merchants stop imposing credit/debit card surcharges when customers use their credit or debit cards.

It has been proven many times that cash payment is highly inefficient and should be replaced by cashless payment in our bid to become a cashless society and be on par with other developed countries.