Demonetization is taking a toll on the common man, and the worst affected is the labour class. However, for those that are able to afford digital wallets and cards are being favoured and encouraged to use these tools in transactions.
Mobile wallets like Paytm, Freecharge and MobiKwik have been the biggest winners in this announcement, but the Government wants to ensure that other modes of payment are getting noticed. For the same reason, now no transaction fees will be processed on the usage of a debit card.
A report by ET mentions, “All public sector banks and some private sector ones have agreed to waive the transaction cost for all payments made through debit cards, Economic Affairs Secretary Shaktikanta Das told reporters.”
This fees waiver has been activated till 31st December. From 2017 onwards, the fees applied on transactions will be back and the Government will want to test the effectiveness of this monetary change. ICICI Bank and Axis Bank have decided to waive off the fees till the end of this year.
Was service charge the sole reason of low debit card usage?
A lot of people who own a debit card also possess a credit card, and a credit card is often marketed more by the issuer banks. The reason being that a credit card provides more earnings to these banks and hence is a profitable tool for many.
Debit cards also do not have exciting offers like a credit card, so it is an attractive tool to us. Having said that, a lot of people still use debit cards for the ease of transactions and no risk of borrowing credit. Again, someone with a debit card would most likely also have a digital wallet to complement it.
The service charge per transaction can range from 0.75 to 1% and this has been a major factor deterring the adoption of a POS machine at small retail stores. Removing this fees will definitely make debit card transactions more attractive, but only till the end of this year. To really promote cashless transactions, this fees should be waived off for a longer time.
Large retailers will still not have any issue in adopting the card technology, but the small retailers will be hesitant because they have only a month to accept card payments. However, the rise in debit card payments will shoot up, even if just for a month.
“I think the theme right now is that digitisation should happen for all transactions across payments instruments and the government is doing all that it can to provide that push. While it’s a temporary move (waiving off of debit card charges), it’s a welcome measure that came about after a discussion between the government and the industry”, said Naveen Surya, President, Payments Council of India.
The Government could be taking some decisions in haste, and this might recoil starting next year. However, for both merchants and consumers this is a welcome news and will help smaller retailers get higher sales in the next month.