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Jul 12, 2012, 08.23 AM IST
In a revolutionary move, the Reserve Bank has stepped in to expand debit card usage. It has cut the transaction fee that shops and merchants pay banks for debit card transactions. Banks and other operators are upset but the central bank remains steadfast.
In a revolutionary move, the Reserve Bank has stepped in to expand debit card usage. It has cut the transaction fee that shops and merchants pay banks for debit card transactions. Banks and other operators are upset but the central bank remains steadfast. CNBC-TV18’s Gopika Gopakumar reports.
Your neighbourhood kirana shopkeeper, who has so far been resisting your paying by card, may soon become open to the idea. The Reserve Bank has slashed the fee that merchants have to pay to banks for these card transactions.
Currently, merchants pay as high as 2% on every debit card purchase.
RBI has now capped this fee at 1% for all transactions above Rs 2,000 and 0.75% for transactions below Rs 2,000.
Experts hail this move as it will bring in transparency in the pricing of debit card transactions.
AP Hota, MD & CEO, NPCI says "Major benefit is the transparency in pricing. Now the pricing was a little complex and not so transparent because of regulatory intervention of 1% Merchant Discount Rate (MDR) or 0.75% MDR depending on price. There would be a lot of pressure on acquiring bank, issuing bank and the network to reduce the price."
But not all are cheering this move. Bankers, makers of point of sale or pos devices, and network operators like Visa, Mastercard are unhappy with the RBI. Lower debit card rates will mean an immediate loss in revenue for all of them.
As per FY12 data, debit card volumes are at 53,432 crore and the fee charged on the merchant is 2%, which is around Rs 1,068 crore. The new regulation will nearly halve the fees that merchant have to pay to banks to Rs 534 crore.
Banks that will be most impacted are Axis with 2 lakh POS terminals, HDFC Bank with 1.8 lakh terminals and ICICI Bank with 1.6 lakh terminals.
NPCI is hopeful that banks will make up for the fees with increased transactions.
"The immediate impact is there, income would be reduced. It would be reduced because what previously they were getting X amount really almost X-40% or 50% they would be getting, so they would be hit, but if the volume grows and I do believe the volume would grow, they can make up," says AP Hota, MD & CEO, NPCI.
Naturally, bankers don't share RBI's optimism. They argue that a 0.4% reduction in debit card fees will not really incentivise merchants to push debit card usage. But RBI seems to be in no mood to listen to these protests and is looking to strictly enforce these new rates.
Visa appreciates RBI's vision
"Visa appreciates RBI's vision 'to proactively encourage electronic payment systems for ushering in a less-cash society in India'. This measure announced by RBI attacks one challenge of many which is limiting the rapid growth of electronic payments in India and would be successful only if urgent steps are taken to address the remaining challenges which needs active participation of the government and other stakeholders," says Uttam Nayak Group Country Manager India and South Asia, Visa.
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