State run banks to slash fees on debit card based transactions, fees could be as low as Rs. 2 per transaction

The Government of India is promoting the usage of cashless transactions and in its most recent shot at this, the government has asked state-run banks to lower fees for debit card transactions. The fee could be as low as Rs.2 per transaction. According to a Mint report,

“the fee will be charged per transaction rather than as a percentage of the value of a purchase, as a massive proposed roll-out of point-of-sale (POS) terminals is expected to reduce costs.”

The decision of having fixed fee on debit card based transaction is in tune with the recommendations of a committee set up by the finance ministry to examine issues throttling the growth of ecommerce. The committee, which included software industry lobby Nasscom, recommended that the fee on debit cards be reduced because of the lower risk involved. However, credit card transactions will continue to have higher transaction fees.

To encourage card (credit and debit card) based payments, public sector banks are expected to roll out 600,000 more POS terminals by 2014. At present, India has about 500,000 PoS terminals.

Earlier in July 2011, usages of debit cards have crossed the credit cards in terms of transactions. Although, credit cards were more significant in value terms, the gap between the two has diminished. As compared to 2.56 crore credit card transactions in July 2011, debit cards were used 2.66 crore times and this  continued in August also  when credit cards were used 2.76 crore times, while debit was used on 2.77 crore occasions. According to  RBI statistics, in August 2012, number of point of sale (PoS) pertaining to credit card stood at 32524725 worth 9584.35 crore, while the number of debit card based PoS stood at 38213667 worth 5889.48 crore.

The above figure clearly signifies the increasing usage of debit card based transactions. And after having fixed fee on debit card transactions and doubling the point of sale (POS) terminals in next 2 years, debit card based transactions would certainly get a leg up.

Also, the decision would edge out the friction within offline merchants to accept debit cards for payment purpose as there are many more Visa/Mastercard enabled debit cards than credit card- so a larger user base is being encouraged to go cashless – which can only help online payment and commerce (earlier,RBI slashed charges on NEFT for transaction up to INR 10,000).

Currently, merchants discourage card usage by customers, when it comes to high-value purchases, and sometimes ask customers to pay the transactional fees. For credit cards, the charge is 1-2% of the value of the transaction, depending on the merchant size and location, while on debit cards; the charge goes up to 1%.