Wednesday, November 19, 2014

What the ATM fee mean for the common man


RBI has freed the banks to levy charges for ATM transactions on 6 major cities. What does it mean for a common man?


I am leaving behind what ever transaction fees each back has to pay each other for their customers transaction on other bank ATM. I am not sold on why RBI would need to have such a free in this age when ATM usage has to be encouraged. Which will take away the queue from the bank counters.


If bank A has to pay Bank B for its user to use the other bank's ATM, why not RBI take all the ATMs under their control and make it available to public.

 

 I can assume there are three modes of transactions for our expenses:

  1. ECS direct from bank account: Most of us pay ECS and it is directly debited from the bank account.
  2. Credit card or Debit card: For those who feel comfortable and are disciplined using a credit card/debit card, this will be a mode given an opportunity.
  3. Cash transaction: Our kirana store guy will throw away the credit card if you are going to give him. Paper still works when plastic is not accepted. Or will your bus conductor take a credit card? They don't even take Rs. 10 for a Rs. 3 ticket.

There were ages when salaries was given in cash and people use to carry their months fortune with fire in their belly. Things changed after employers started giving check and later started to transfer the salary to the bank accounts. Still people use their debit card only to withdraw cash than for any other transactions. That is the current state of the majority of the common man. Can you give your debit card to your mom for the first month salary ;) Nah. Indian sentiments are meant to be followed.

The Rs. 20 transaction fees is going to make people plan and withdraw cash in bulk than to withdraw it on a need basis as and when needed. This will add the fire back to the belly. I can definitely see this coming.

People will now be forced to carry more cash in  their pockets than they do without this transaction fees. Rs. 20 may not be a big number for a few. For people counting nickle and dime, Rs. 20 will hold a separate budget equation.

This I see as a step backward and a way it will increase the queue in the banks.

What RBI should have done and is a long due from policy makers.


RBI should have started pushing credit card and debit card processing systems to reach where these cash flow market is. This will discourage use of cash transaction and will increase the use of credit cards/debit cards. Once people are used to this transaction, why will anyone want to carry cash on them.

RBI should also encourage debit card and credit card transactions for how much small the transaction is. Why should I not pay for a bottle of water with my credit card. If I can pay it with my credit card, why will I need cash in my pocket. If I am in a railway station and wanting to buy a Rs. 15 water bottle, should I take Rs. 100 from the ATM or make a higher withdraw to justify the Rs. 20 transaction fee. Pushing credit card to this side of the market will pull the parallel uncounted economy to main stream economy, giving policy makers an insight to the actual GDP.

Western countries have caught up long time back and are ages ahead of us. We are still talking about ATM transaction fees without solving the root cause on why someone would want to use the ATM machine and carry cash with them. If this is the state of large cities, how many centuries it is going to be, before we start seeing this in our villages which are the back-bone of our economy churning our agriculture output.

It is a huge potential to penetrate and account for all transactions. With the ease of availability of smart phone, it throws open the huge playground for innovative payment systems that a mechanic can use or a vegetable vendor can use. There are mobile card readers working on GSM and CDMA, which will make all if this possible.

I was hoping to see things going forward, we are proving to be late to the party. The wait this time is going to be a long one given the step already taken seem to be in the opposite direction.

Image courtesy of tiramisustudio at FreeDigitalPhotos.net 

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