Have you ever gone to the supermarket for one item and were forced to buy something else in order to use your debit or credit card? The reason you’re forced to spend more in Jamaica is that merchants try to justify the cost to handle digital transactions. Today’s Sunday Finance will explore the questions and myths around merchant costs with consumers.

No bank imposes a minimum transaction amount of $500 or $1,000 for you to use your debit or credit card. However, this issue persists across the island with customers at retail businesses told to spend more to use their card. This barrier to consumers reflects a cost that few people are aware of when conducting digital transactions.

When a customer pays for an item with cash, the merchant must take that cash to the bank or pay a courier to transport that cash. So, the merchant receives that immediate $1,000 and handles the movement of that cash afterwards.

When you pay that $1,000 with a debit card, the merchant doesn’t receive $1,000 in their bank account. Depending on the merchant’s point-of-sale (POS) bank terminal, the merchant will pay $20.70-$28.75 for that transaction and receive a net amount of $971.25-$979.30.

If the customer pays with a credit card, the bank will apply a merchant discount rate (MDR)/commission on the transaction. Some banks like Sagicor Bank Jamaica and JMMB Bank (Jamaica) apply an MDR of 4.14 per cent on each transaction at the physical terminal while National Commercial Bank (NCB) charges 4.60 per cent on each transaction. Thus, a $1,000 credit card transaction will see a merchant receiving a net amount of $954.00-$958.60.

The Jamaica Observer reached out to other commercial banks to learn about the MDR but received limited replies. Scotiabank Jamaica confirmed that the debit card fee is $24.35 plus general consumption tax ($28.0025) while the MDR for credit card transactions is specific to each merchant and depends on the volume and ticket size of transactions processed. One bank executive confirmed that merchants with larger transaction volumes and values can negotiate the MDR applied on their transactions. Their bank’s MDR ranges from 3-5 per cent, but is negotiable based on transaction volumes and values.

Apart from the fees associated with processing transactions, merchants are also subject to other fees to process digital transactions. Merchants must pay a one-time setup fee for their physical POS terminal and depending on the type of terminal they use, there is a monthly fee that they must pay the bank to use that debice. The wired POS terminal can cost $2,300 while the wireless POS terminal that can be carried anywhere costs $5,175 each month. Using an MPOS (mobile POS) terminal, which is a small device that can be connected to their mobile phone or digital tablet, costs $1,150 per month.

If the merchant has a chargeback request, that can run the merchant US$13.80 as a fee for the disputed transaction. Chargebacks occur when a customer/cardholder’s bank requests a merchants’ bank to reimburse the customer for issues such as fraud, unauthorised payments, incorrect charges, or undelivered or faulty goods.

This is on top of annual PCI (payment card industry) compliance fees that merchants must pay as part of the guidelines established by their bank. If there is a breach of the PCI guidelines, the merchant can be subjected to a fine by the bank.

When a merchant accounts for these fees, they might set a minimum transaction threshold to ensure that they don’t end up negative on the transaction. Other merchants will adjust their prices to account for these transaction fees so that they retain a decent margin to pay for their operational expenses.

Surcharge not allowed

Some consumers have gone to the gas station or a tourist attraction and are told that they must pay a fixed fee or a percentage of the transaction value to use their debit or credit card. While some persons might leave the establishment, others might just pay and go on with their day.

However, these additional fees which are called surcharges are not allowed under the merchant services agreement. They go against the standard set by the bank and even the processor like Mastercard or Visa. If a customer complains to the bank, the bank can request that the merchant stop the practice and conform to the standard established under the agreement. If that merchant continues to violate the agreement by continuing to apply surcharges, then the bank can terminate the agreement and recover the POS terminal.

A banking executive, who asked not to be identified, told Sunday Finance that while people complain about surcharges, few make formal complaints to the bank attached to the POS terminal about the practice.

“If everyone complains and no one makes a complaint, there’s nothing we can do. There’s a process and it requires customers to make formal complaints,” the executive explained.

These fees are also a reason why some merchants will charge you less if you pay cash than pay with a card. This continues to act as a hindrance to move Jamaica to a more cashless society like China or several South East Asian countries.

The continued advancement of technology continues to create opportunities for some merchants to cut down on these fees that they pay to use the POS terminals. NCB launched its ePOS tap-on-phone solution in mid-2024 and the product has gained a lot of traction amongst small and medium businesses. A customer can use their near field communication (NFC) enabled mobile phone to accept transactions and pay a lower monthly cost to the bank for the service. CIBC Caribbean Bank is set to launch a similar product in conjunction with Fygaro to turn Android phones or tablets into secure payment terminals.

The Bank of Jamaica’s 2024 financial stability report revealed that the average monthly transaction in 2024 was $190,500 per person, a 3.36 per cent year on year increase. Also, credit cards continued to be the dominant payment tool as they accounted for 65.1 per cent of the total number of retail payment transactions in 2024. This is against the backdrop where 3,775,987 debit cards or 90 per cent of Jamaican dollar (JMD) cards in circulation are debit cards. There were 428,948 credit cards as of September 2024. The Planning Institute of Jamaica’s 2024 edition of the Economic and Social Survey Jamaica revealed that there were 84.8 million JMD transactions worth $1.1 trillion were processed at POS terminals in 2024.