Friday, August 4, 2017

Digital payments- beginning of unfair banking practices

Govt. of India came out with an idea to encourage Digital payments. The digital payment has an exponential growth during demonetization as the legal currency of denomination of Rs. 500/- and Rs. 1,000/- was withdrawn overnight  to be replaced with new currency of denomination of Rs. 500/- and Rs. 2,000/-. All of a sudden the citizens were deprived on even meeting their daily needs and hence the digital payment industry saw the boom during demonetization.

It is alwayz better to use digital payments as one get rid of carrying on cash in the wallets. The other advantage could be security and safety of both notes as well as that of the person carrying the currency. Ideally the use of digital payment does not only address the security issue but it is also cost effective. The perceived advantage in the digital payment process could be less operational cost for both merchant as well as Government and Banks as well as:
1. Less cost towards printing and distribution of currency at the last mile stone.
2. Soiling of the currency
3. Less operational cost to the merchant in the sense, if the cash payment is made, the merchant would have to incur insurance cost, cost of transportation of the hard currency from the site to the bank and security of the person carrying the currency
4. Less operational cost to the bank on account of storage, manpower resources coupled with insurance and security for cash money in the bank

All these listed factors vouch for the use of plastic money so as to result in saving and all such saving on these cost is advantage to the merchant and banks. However on the contrary, the shocking part is that the banks/ merchants have started practice of charging transaction fee if the citizen resorts to payment by plastic money instead of cash money despite a fact that there is a reduction in operational cost to all stakeholders viz. banks, merchants and Government. When there is a cost reduction towards operational cost in case of digital payment to Banks/Governments and Merchants, charging of any transaction fee by the banks or the merchants is neither logical nor appreciable.  Shockingly, the Banks have even started charging as high as 5% of the transacted value in case someone wish to pay by debit cards. One such glaring example is if the consumer get petrol filled in the vehicle for Rs. 200/- the State Bank of India is deducting an amount of Rs. 211/- from his account. Another person who is a consumer of Indian Overseas Bank has reported that the Bank  has charged an amount of Rs. 43.13 for a transaction of Rs. 1,500/- at petrol pump. Is such a practice of charging transaction fee ranging from 3 to 5% for using debit cards not amounting to unfair business practice of the banks or merchants despite their operational cost going down due to such usage.

It is believed that there is an immediate need for Govt. of India to step in and take appropriate steps to prevent occurrence of such unfair business practices. There is no justification of charging any additional money on account of transacting through debit cards/Internet Banking. It is worth stating that charging of any transaction fee for payments through debit cards is in violation of RBI directives videRBI/2013-14/292 DBS.CO.PPD No. 3578/11.01.005/2013-14 dtd. 17th September 2013, the relevant part is quoted below:
" 4. Levying fees on debit card transaction by merchants: There  are instances where merchants establishments levy fees as a percentage of the transaction value as charges on customers who are making payments for purchase of goods and services through debit cards. Sucg fee are not justifiable and are not permissible as per the bilateral agreement between the acquiring bank and the merchants and therefore calls for termination of the relationship of the bank with such establishments."

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