Technology, in this modern world is the order of the day. The innovation and development in technology has had a far reaching effect in the way we carry out our day-to-day life. May it be travelling, shopping, entertainment, sports, dinning or even relaxing, technology has touched every aspect of our lives. On an economic front too, financial markets have evolved tremendously with the help of technology. Moreover, advance technology has changed the way a customer does a banking transaction. Online payments have become the order of the day, and gradually more and more transactions are being done through the internet.

But until now, citing the above increasing online transactions, banks were charging their customers 1.8% on all online payments made using debit cards. Concerned about the high charges levied by banks on the debit card transactions, the National Association of Software and Services Companies (NASSCOM) had been demanding a reduction in transaction rate, arguing that payments made through debit cards are risk free for banks. Besides, the cost to banks for enabling use of online debit card is less than Rs 10 per transaction - way less than what they have been charging consumers.

Addressing to this long-standing issue, country's central bank - the Reserve Bank of India (RBI) has reduced the transaction charges for payments made online through debit cards to a maximum of 1%. From July 1, 2012 transaction fee for online payments up to Rs 2,000 made through debit cards has been slashed to 0.75% of the value of the goods or services bought. Likewise for a transaction over a value of Rs 2,000, a maximum of 1% levy on the value of the goods and services can be levied.

Impact on e-commerce and customers:
The move is expected to boost e-commerce in India, Asia's third-largest economy, where use of internet for purchase of goods and services is growing at 30% - 35% every year.

Some interesting facts on usage of debit and credit cards...
It is noteworthy that, over the past five years, the value of debit card transactions has risen 355% to Rs 26,418.10 crore, according to RBI. But, more than 95% of this is still offline transactions. Over the same period, debit card usage - both in terms of number of transactions (primarily offline) and growth in value, has outstripped credit card spending by a huge margin. The number of debit cards issued has risen 265% to Rs 18.2 crore while the number of credit cards has increased by just 5.5% to Rs 1.82 crore. Usage of debit cards is also higher than that of credit cards in terms of total number of transactions. Between 2005-06 and 2010-11 (provisional), the number of transactions for debit cards grew 270% to Rs 17.02 crore. During the same period, the number of credit card transactions increased by 50% to Rs 23.4.

The RBI's directive to banks on online transactions is issued under Section 18 of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007) under which Banks don't charge a fee for offline use of debit cards.

For bank’s customers, the reduction in the banking transactions is surely a welcome move. Now customers can transact online through their debit cards with reduced transaction charges, and it is likely to encourage them to do online transactions, as such transactions offer ease and convenience (which is otherwise absent in offline transactions).

Our view:

We believe that RBI has stepped in appropriately and taken a prudent step, which would encourage usage of debit cards while transacting online. Moreover, since it applies for use of debit card, it would also inculcate discipline amongst the customers while shopping or spending money on their desires or requirements - as here they are forced to spend within their means.

Also, customers should note this that while doing online transactions, the websites through which the payment is being made is secured enough to protect your IPINs (internet personal identification numbers) and do not proceed with any transactions wherein your password field displays the password typed in it. Such websites could be hacked and your personal data can be at a risk.


Are banks justified in charging transaction fees on your debit cards? Let us know your comments or post them on our Facebook page / Twitter page.

Add Comments

Comments

xjgymrukl@google.ru Jul 24, 2012 Not likely. There are plenty of CC outfits out there that specialize in giving cards to people with bad credit but it will cost you. It is very common to pay upfront fees totaling over $200 just to get the card, but usually this is automatically charged to the new card. That means you will already be hundreds of dollars in the hole on this card leaving you with maybe $50 in available credit at sub prime interest averaging 18.9%. Not a very good deal if you ask me. You are better off taking that money and using it to get a secured card. There are also fees associated with a secured card but nothing like the above. Make sure the card reports to the credit bureaus so that after a year of good payments you should qualify for a regular card with much better terms.

 1