With the all-around digitalization and advancement of technology, the customers have gotten used to the convenience of life. Technology facilitates speed, comfort, and ease. And as the name suggests a convenience fee is related to all of these.
Explanation of what is a convenience fee
The merchant charges the convenience fee when the customer makes the payment through a non-standard mode of payment rather than the standard one.
Standard payments could be cash, cheque, etc. And, a non-standard one is generally an e-payment or online payment mode. It can be a payment gateway with multiple payment modes like a credit card, debit card, net banking, UPI, etc.
Therefore, when a customer chooses to make the payment through a credit card or an online payment method, they may be charged a convenience fee by the merchant.
This can be explained with the example. You may notice that when you book the movie tickets, book the railway or airline tickets, pay the college or other fees, bill payments, etc., then an extra fee is charged and it would be named as a convenience fee or internet handling charges.
So when you buy a ticket through an online portal instead of a ticket window, you will see an additional charge at the time of making the final payment.
Various such entities charge this fee. It is generally a flat fee amount or the percentage of the transaction amount. It needs to be displayed separately and clearly to the customer and cannot be hidden.
Convenience fee and Surcharge
To charge a convenience fee there needs to be another standard form of payment. Thus, the online payment mode would be an alternative but facilitating mode to pay. The customer has an option to avoid that fee by paying through the standard option.
Whereas a Surcharge is a fee being levied when the merchant passes the cost in the form of the transaction rates they incur when the customer pays with the credit card option. There are legal discrepancies as per the countries for charging the surcharge.
Understanding the Convenience fee with an example calculation
Support the payment amount at the checkout is ₹ 1000 and the merchant has to incur a fee of flat 1.75% + GST. Then at the time of the final payment, the break-up needs to appear as –
The payment amount is ₹ 1000. The Convenience Fee would be a total of ₹ 17.50 and GST on fee ₹ 3.15 as ₹ 20.65. Therefore the Customer Pays ₹ 1020.65. The merchant gets the full amount of ₹ 1000.
Rules for charging a Convenience Fee
The Government had been against levying any extra charges to promote digital payments and encourage people to use them.
The Reserve Bank of India Draft Circular on February 16, 2017, mentioned, “banks shall ensure that all merchants display the signage “No convenience or service charge is payable by customers” apart from any other signage.”
Whereas the Guidelines on Regulation of Payment Aggregators and Payment Gateways on March 17, 2020 (Updated on November 17, 2020) mentioned, “Information on other charges such as convenience fee, handling fee, etc., if any, being levied shall also be displayed upfront by the PA (payment aggregator).”
As per section 6A (3) of the IT Act, the service providers need to take permission from government authorities to collect, retain and appropriate service charges.
Thus, if the merchant can charge this fee to the customers or not is still in the grey area. Also, as per the countries, region, and card network companies the rules vary.
Ordinary persons have been against these extra charges and it has been taken to the court by them.
On the other hand, charging a small fee for providing an online facility to the customers to make the payments for their convenience does not bother many of them. However, it is required that the charge is not hidden.
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