This article first appeared in The Edge Financial Daily on March 22, 2018 - March 28, 2018

KUALA LUMPUR: Retailers are not permitted to impose a surcharge on debit card payments, Malaysia's central bank said yesterday, urging consumers who encounter merchants that do so to lodge a complaint with their respective banks or payment card issuers.

One of the reasons retailers impose a surcharge is to recover the cost incurred by them when accepting card payments because they are typically charged a transaction fee - also known as the Merchant Discount Rate (MDR).

In general, the MDR for credit cards is higher than for debit cards, but Bank Negara Malaysia's (BNM) Payment Card Reform Framework (PCRF) does not allow retailers to impose a surcharge on debit card payments while international card schemes such as Visa and Mastercard have a similar prohibition for credit card payments, the central bank said in a statement.

"The prohibition on surcharges is monitored and enforced by banks that provide e-payment facilities to merchants [acquiring banks]."

BNM said, in Malaysia, it had introduced measures such as the PCRF and the Interoperable Credit Transfer Framework to lower the cost of retailers when accepting cost-effective electronic payment methods.

"This would in turn lessen the pressure for retailers to impose [a] surcharge on customers."

However, BNM observed that globally countries have adopted different approaches in dealing with the issue of surcharge imposed by retailers on card payments.

In the European Union and UK, retailers are prohibited from imposing a surcharge on credit card and debit card transactions. But in Australia, retailers have the right to impose a surcharge on credit card payments.

"The rationale of such approach is to send the correct price signal to encourage consumers to pay using the more cost-effective debit card," BNM observed, adding retailers who cannot afford to pay the higher MDR for credit cards should liaise with their respective acquiring bank to accept only debit card payments, or alternatively opt for mobile payments (instant fund transfers).

BNM's statement came on the heels of comments by Deputy Finance Minister I Datuk Othman Aziz in parliament last week that there would be no abolishment of interest charges on credit cards.

Othman reportedly said scrapping interest charges would only encourage excessive spending and a lack of discipline among credit card holders.

He said as at December last year, there were 9.9 million credit cards in circulation, out of which 8.8 million were primary cards registered to 3.7 million individuals.

Following Othman's comments, a news portal reported that Consumers Association of Subang and Shah Alam, Selangor president Dr Jacob George had urged the government to abolish surcharges imposed on debit card and credit card transactions as it was unfair to users.

In response, BNM clarified that Othman was responding to the interest imposed by credit card issuers on cardholders for outstanding credit card balances that are overdue - not surcharges imposed by retailers on credit and debit card transactions.