1.6 per cent Transaction
Processing Fee levied on the value of all transactions
By Syed M. Aslam
Sep 20 - 27, 1999
Tens of thousands of credit card users across Pakistan were shocked to
find that they were required to pay an additional fee on every single purchase, when they
received their bills recently. They were simply sent a note by the issuing banks which
summarily informed them that every single purchase by them or their supplementary card
member(s) would now include what the banks called a 1.6 per cent Transaction
Processing Fee (TPF) on the value of all transactions.
The note also informed the card holders that the TPF would appear in
the monthly statement and would be included in the minimum monthly payment. A user showed
PAGE the typed note received along with his recent bill which told him that the Citibank
would be charging a 1.6 per cent TPF from now on.
Another source close to one of eight authorized agents in Karachi,
appointed by the Bank to market its Visa and Mastercards, told PAGE that no clarification
had been provided by the Bank about the reason for imposing the TPF.
The Citibank which previously marketed Visa and Mastercards has now
decided to out-source the job to appointed agents. The Bank provides training to the sales
staff hired by these authorized agents while the salary and commission are paid by the
The source declined to tell PAGE the exact amount of remuneration paid
to the sales staff on each sale but said that the eight agents appointed by the Citibank
in Karachi are given a target to sell a minimum of 100 cards each month.
Observers say that the imposition of TPF by the two market leaders of
Visa and Mastercard in the country Citibank and ANZ Grindlays Bank is actually
an attempt to pass the 2 per cent Central Excise Duty imposed by the government in the
Federal Budget 1999-2000 on the banks. By imposing the fee on the card users these
financial institutions have negated the claims made by the Finance Minister Ishaq Dar in
his budget speech in which he had said that the CED would be borne by the banks and it
would not be passed on to the card users.
It is a customary for the banks, the world over, to deduct a fixed
percentage on all credit card transactions, usually 2.5 per cent, from all participating
outlets. This is one of the primary sources of revenue for the banks besides the compound
interest they earn on the minimum monthly payments. Over the years the increasing public
opinion has forced the banks in the developed West, where plastic money has replaced cash
to a great extent, to cut their interest rates substantially from 22 per cent a decade
The use of credit card is still in the nascent phase in Pakistan, a
country where the credit card population is very low there are only about 150,000
credit card holders or just 0.1 per cent of the population. Pakistan does not only have a
small number of credit card holders but also a limited number of outlets which honour two
of the best known credit cards in the country, Visa and Mastercard. There are some 10,000
outlets nationwide which accept Visa and Mastercard, 6,000 of them in Karachi alone.
In a country, where the concept of plastic money has yet to take roots
and where its use is restricted by being acceptable in such major businesses as the
prominent hotels, airlines and retail outlets, there are many other factors which
discourage the use of credit cards.
Number one, banks in Pakistan charge a fixed annual fee on a card
besides renewal fee. In addition, card users are also required to pay a one-time
joining fee to get the card. For instance, Citibank, which is marketing both
the Visa and Mastercard, charges an annual fee of Rs 4,000 for the issuance of Gold
version and Rs 2,000 for the silver version of any of the two cards.
Apart from deducting a fixed 3 per cent from all transactions from the
participating outlets it also charges the users an interest on the unpaid balance on
compound basis. Now it has also chosen to charge the users a fixed 1.6 per cent TPF to
pass the major portion of the 2 per cent CED meant to be absorbed by the bank alone.
Many smart credit card users who chose to pay the entire balance in the
initial billing to avoid paying interest would now have to absorb the mandatory 1.6 per
cent TPF. Others who are lured by the credit cards to spend now and pay later
and chose to pay the minimum 5 per cent of the remaining balance over long period of time
have to realize that a 3 per cent interest charged by Citibank and 2.33 per cent charged
by ANZ Grindlays, would incur extremely high interests. Simply, the longer you chose to
pay the bigger interest you have to cushion. The mandatorily slapped TPF, of course, would
always make a part of bill on all transactions irrespective of the value.