RBI Cuts Debit Card Transaction Fee Fee slashed to a maximum of 1%; RBI move expected to help boost e-commerce

The Reserve Bank of India has reduced transaction charges for payments made online through debit cards to a maximum of 1%, addressing a long-standing grouse of consumers and merchants who were paying almost double earlier. From July 1, transaction fee for online payments up to . 2,000 made through debit cards has been slashed to 0.75% of the value of the goods or services bought. The charge can be a maximum of 1% for purchases above that value. Banks were earlier charging 1.8% of all online payments made using debit cards. The move is expected to boost e-commerce in India, Asia's third-largest economy, where use of internet for purchase of goods and services is growing at 30-35% every year. According to the Internet and Mobile Association of India (IAMAI), e-transactions in the country totalled . 46,000 crore in 2011. 

"We are happy. There is no credit risk to banks with use of debit cards. Banks were charging too much for online payments," said Som Mittal, president of Indian software industry association Nasscom. "Ideally, it should be lower — 0.3% or less, as it is globally, to encourage online transactions," Mittal added. Nasscom had been demanding a reduction in transaction rate, arguing that payments made through debit cards are risk free for banks. Besides, the cost to banks for enabling online debit card use is less than . 10 per transaction, way less than what they have been charging consumers. 
"This will improve the bottom line of e-commerce companies. Margins on products sold online are very low (it is 6-8% for mobile handsets) and merchants absorb the additional levy (on debit card payments) by banks to make it attractive," said Gatuam Sinha, director, technology & e-commerce, Indiatimes Shopping. 
Deep Kalra, CEO of MakeMyTrip.com, said, "We welcome the move, though it should be brought down further. About 20% of the transactions on MakeMyTrip.com happen via debit cards." The transaction fee for online use of debit cards is much less outside India, varying from 12 cents per transaction in the US to 0.2% in Europe. "It should be reduced to zero. There's too much cash-on-delivery happening, which adds to the cost of merchants. Plastic payment is the way to go, but users have been discouraged due to additional costs that banks levy on online transactions," said IAMAI president Subho Ray. 
Over the past five years, the value of debit card transactions has risen 355% to . 26,418.10 crore, according to RBI. However, more than 95% of this is offline transaction.