Bank charges on cash transactions are a product of the increasing costs incurred by banks, while servicing a customer. But dealing with cash is more expensive than the service charges incurred on online payments, says Ashutosh Khajuria, ED & CFO, Federal Bank in an interview with Express. Excerpts:
Why should one use less cash?
It’s the general perception that using currency is inexpensive than digital modes, which attracts services charges and transaction fee. Truth is, cash is more expensive to the consumer.
Every year, the government spends thousands of crores of tax payers money to print money and distribute cash every year and if you do the math, using currency will be more expensive.
Banks also maintain and bear the costs of designated RBI currency chests to have adequate and easy to cash. Besides, each bank branch also maintains cash, some of which lies unutilized, but without gaining interest.
If the need for cash reduces, the costs for banks to maintain and hold more cash also goes down.
Why are bank charges here to stay?
Earlier, banks used to recover money from merchants, who would pay 2.5 per cent of the profit on every transaction to the bank.
But with platforms like the UPI, the usage of debit and credit cards at point of sale terminals and elsewhere is falling. This revenue loss needs to be compensated by increasing existing levies or imposing charges on services.
What would be the benefit of cashless transactions?
The biggest gain is the elimination of under-reported (parallel) economy. Earlier, dealing with cash allowed people to under-report transactions, but as the country is moving to cashless, this will increasingly become difficult.
As the actual transactions get recorded, the economic profile too gets a significant boost.
What is the way forward?
As digital transactions gain prominence, and as more value-added services join the online platforms, consumer’s mobile phone will double up as the bank branch. Gradually, the dependency on physical branches will reduce. At Federal Bank, we added only 6 new branches during FY16 and have not added any branches in FY17.