From annual fees and interest to hidden charges, the cost of holding a credit card can add up quickly. The latest cost joining the scene is the credit card surcharge, where merchants charge the customer a fee for using a credit card. The only problem is that the UAE Central Bank prohibits businesses from charging consumers for using credit or debit cards.
In the UAE, there is a small group of banks that are licensed to process credit card transactions, which includes Mashreq Bank, National Bank of Abu Dhabi, and Network International (partially owned by Emirates NBD). These institutions are allowed to charge a merchant up to 2% of the transaction amount when a customer uses a credit card; this means businesses can end up paying very large sums in transaction costs. This is not unique to the UAE; the payment processing industry works the same way around the world.
There are some exceptions to the restriction on credit card surcharges however. Since August 2013, Dubai petrol stations have begun accepting debit and credit cards as a form of payment for fuel purchases with an AED 2 surcharge. The main reason it took so long for gas stations to start accepting payments by card was the initial refusal by authorities to allow them to levy a credit card surcharge.
Undersecretary of the Ministry of Economy explained the reversal in policy: “Thus gas stations are excluded from the 2012 Supreme Committee for Consumer Protection’s decision, which prohibits imposing additional fees on using credit cards to purchase a commodity. There is full freedom to choose the way consumers buy fuel, either by credit card or to pay in cash, and in this case they do not pay a Dh 2 surcharge.” While some believe this is a double standard, one must remember that fuel is subsidized in the UAE.
In late 2013, reports began surfacing that private schools in Dubai were charging parents a 2% fee for using a credit card to pay for tuition. More recently, GEMS Education, one of the major school operators in the country, has announced that they will be levying a bank administration fee for tuition payments made through credit cards. A spokesperson for GEMS Education commented on the matter by saying, “Effective July 1, GEMS is no longer able to accept most credit and debit cards. Every year, millions of dirhams in tuition fees go towards paying credit card transaction fees charged by banks; we believe those sums are better used in educating our students.”
What has caused even more of an uproar from residents is that parents can avoid this fee if they use the NBAD GEMS Titanium Card. In addition, cardholders receive a discount on tuition. Many view this as an attempt by GEMS to promote the card, while school officials have insisted they receive no material benefit from the partnership with NBAD.
While partnerships between businesses and banks are not new, this one seems to have hit a nerve within the community. However, the real issue is residents trying to cope with the rising cost of living in Dubai. Education fees have become a major expense, and many have resorted to borrowing through credit cards to meet the financial demands of living in the UAE.