The Reserve Bank of India (RBI) on Monday said it is not logical for banks to charge similar interchange fee on debit cards as levied on credit cards.
An interchange fee is the amount per transaction that is shared among various stakeholders, such as issuer bank, acquirer bank and the payment gateway. Presently, the charge is 1.1-1.2 per cent for both debit and credit cards.
Lower fee on debit cards will help in larger acceptance of electronic payments by merchants across the country.
“We are saying that the debit card interchange fee should be lower because credit cards get paid after sometime, whereas in debit cards, there is an instantaneous debit into my account. Hence, logically debit cards charges should be lower,” said G Padmanabhan, executive director, RBI, who is in-charge of the payments and settlement system.
He said the central bank’s thumb rule is to keep the payments systems ubiquitous and it does not support exclusivity. In terms of regulatory intervention in pricing, he added RBI allows the market to fix its own price till the time pricing becomes illogical.
There are 268 million debit cards in India, according to the latest RBI data. The payment channel has picked up faster than credit cards because of lower risk advantage for banks.
However, there is more scope in the under-banked and unbanked areas for banks to expand the usage of debit cards, Padmanabhan said.
“Why can’t banks issue debit cards to no-frills account-holders as one can withdraw only up to the amount in his account,” he said.
He urged banks to consider foregoing the concept of a “home branch” as all have moved to core banking solution. Padmanabhan pointed out that it is the bank’s responsibility to upgrade infrastructure and make sure that customer requirements, especially on the first 10 days of a month, are met.
He said customers are facing enormous problems in accessing ATMs in interior parts of the country. It is the bank’s responsibility to replenish the cash in the ATMs adequately.
Padmanabhan said banks must be cautious while selecting business correspondents as they represent them in financial inclusion.
He was speaking at the launch of RuPay debit cards, which is promoted by National Payments Corporation of India (NPCI).
RuPay aims to capture 50 per cent of the debit card market by March 2015. NPCI’s managing director and chief executive officer A P Hota said banks should be able to roll out 10 million RuPay cards by the end of next financial year. NPCI is offering services to banks at 40 per cent lower cost in order to achieve the targets and to increase acceptance of RuPay card.
“International schemes charge 20-30 basis points per transaction to acquirer and issuer banks put together, while RuPay will charge only 10-15 bps,” said Hota.
There is no participation fee in RuPay, unlike amounts close to $50,000 charged by international rivals, he said. Hota said he expects all public sector banks to join in by the end of this calendar year. “Banks will save Rs 200-300 crore each financial year if they shift to RuPay,” said Hota.
He said NPCI will aim to channelise payments under government schemes such as MNREGA and Kisan Credit Cards. RuPay will also be issued internationally by end of next financial year.