Essentials of personal finance
If you walk into any bookstore, you will notice...
When online payments are expanding at a phenomenally high growth rate of 30% every year, does it need the “artificial push” from the banking regulator? And that too at the cost of the banking public, majority of which is still dependent on the chequebook system?
The Reserve Bank of India (RBI), in a discussion paper, has suggested discouraging usage of cheques for encouraging online payment methods among the masses. However, several consumer and business organisations are questioning this move.
Shrikant Soman, honorary secretary, of Council for Fair Business Practices (CFBP), said, “...the issue here is not of the relative advantage of the online payment method versus cheque payment method. We have very clearly acknowledged the utility of the online payment system. The issue is: Do we artificially push one wheel of the economy in order to make the vehicle of our growth move faster?”
CFBP was set up by leading industrialists like JRD Tata, SP Godrej, Ramakrishna Bajaj, Arvind Mafatlal, Harish Mahindra and SL Kirloskar. It works to promote the highest ethical practices, by business and professionals, in order to provide complete satisfaction to consumers and other stakeholders.
Participating in a discussion organised by Moneylife Foundation, he said, “Various payment methods are like the engine oil of the monetary system. We all know very well what happens to our car when the engine oil is of bad quality or has dried up. Therefore, the message is loud and clear—please do not mess up with these systems. It is giving good results ‘on its own merits’. When we observe that the online payment transactions are growing a robust 30% on year to year basis over the past 10 years, let it continue on its own growth chart on its own strength.”
Recently, the RBI issued a discussion paper titled “Dis-incentivising Usage and Issuance of Cheques”. The paper seeks views of ways to promote the usage of electronic transfer of funds by penalising the usage of cheques.
Mr Soman said, “If we make an analysis of the volume of the cheques cleared through the MICR cheque processing centres in India during the six months between April and September 2012, we observe that 89% of the transactions pertain to the monetary value of less than Rs1 lakh. What does it indicate? It clearly indicates that the common man—aam janta—is still substantially using the cheque payment method. Nearly nine out of 10 transactions below Rs1 lakh are done through cheque payment.”
According to Mr Soman, the plan is to make cheques costly suddenly. “The new proposal seeks to charge also the recipient of a cheque, which is absurd. This will certainly make people go back to cash. People will take the charge on cheques as a bad sign and go back to cash. So these are confusing signals,” he said.
“...in the banking sector, with the entry of private banks, there has been a fair deal of competition and the consumer is the beneficiary with better and efficient services. In such a scenario, this idea of ‘dis-incentivising’ the usage of cheque payments through the artificial method of putting levy on cheques seems to be out of place,” he added.
While it was assumed that online payment systems like NEFT would decrease the workload for banks, the ground reality is completely reverse. According to Mr Soman, NEFT has in fact increased paper work for bank officials and even the tiniest mistake while entering the number leads to money not being credited. “In addition, it is not as easy as it sounds because you have to do all the homework to know the exact branch code, etc. Mistake there too can get money wrongly credited,” he said.
Here are some important points raised by CFBP on the ground reality of online and cheque payment systems...
1. Common man does not use the 'online' payment method simply because he is not “tech savvy”. Any amount of ‘pushing’ is not going to result in increased usage of electronic mode of payment beyond its already rapid growth rate of 30%.
2. The electronic method of Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) is itself much more expensive over the cheque payment method.
For all value of payment up to Rs2 lakh, NEFT mode of payment is to be used. It costs Rs5 per transaction for value up to Rs1 lakh. For value between Rs1 to Rs2 lakh, it costs Rs10 per transactions. In the case of individual transaction value of above Rs2 lakh, we have to adopt RTGS mode of payment. It costs even higher. For value of individual transaction between Rs2 to Rs5 lakh, the charges are Rs25 per transaction and for value above Rs5 lakh, the charges are Rs50 per transaction. A common man does not use his PC and Internet for making payments in majority of the cases. Moreover, the consumer confidence in terms of the security of transactions is very low for online payments. The recent cases of ‘hacking’ into the accounts have seriously damaged the consumer confidence in this mode of payment.
3. The dis-incentivising usage of cheques may have the result of slippage into “cash based” economy' instead of the upward push into online method of payment. This will push back our economy into good or bad old days of ‘cash’ transactions with the resultant pitfalls of black money and parallel economy. The RBI in its discussion paper has acknowledged this risk. Thus instead of achieving its declared objective of “less-cash” society, we will have “more-cash’ society.
4. It is simply impractical in many of our day-to-day transactions to use online payment method. Cheques are bound to be here even many decades down the line - though their usage will certainly decline.
5. For a merchant, credit card usage involves a cost of 2% to 2.5% of the value of transaction. It is a common market practice, nowadays, to recover this cost from the customer. This aspect also needs to be considered while designing any policy of electronic payment.
Even the Damodaran Committee set up by the RBI in its report on “Customer Service in Banks” has recommended providing discounts for online payments. “It was appreciated that several airlines and utility companies are providing discounts for online payments, online ticketing, etc. Such facilities and offers also help the banks and RBI in currency management as the movement of currency is restricted. The Committee felt that if such small discounts to favour electronic payments are given by all the users of electronic bank platforms for collections, a substantial shift in favour of electronic payments as opposed to cash may happen in future and that would also result in substantial savings in cash management to such utilities and others,” it said in the report.
India suffers from low penetration of Internet, erratic power situation and low e-literacy even among otherwise literate persons. In that context, penalizing the usage of cheques would cause hardship to the majority of population including senior citizens. Worse, the charges, meant to act as ‘disincentive’ for consumers would only lead to unjust enrichment of banks.
Rs20,000 crore collected under the pretext of investing in real estate