Banks-petrol pumps’ battle over transaction fees may hit Modi’s cashless India dream | business-news | Hindustan Times
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Banks-petrol pumps’ battle over transaction fees may hit Modi’s cashless India dream

As cashless transactions surged, India’s top three private banks – ICICI, HDFC and Axis – wanted to capitalise by levying transaction fees in the range of 0.25% to 1% on card payments, against which petrol pump owners retaliated.

business Updated: Jan 09, 2017 20:09 IST
Sunny Sen
Cashless INdia
As cashless transactions surged, Banks wanted to capitalise by levying transaction fees in the range of 0.25% to 1% on card payments, against which petrol pump owners retaliated.(AFP file photo)

Pushed against the wall, petrol pump owners showed their first resistance towards a cashless economy on Sunday by announcing they will not accept payments through credit and debit cards from Monday.

Though banks were able to broker a temporary truce on card acceptance – which makes for 30% to 40% of transactions at pumps – the development can have a lingering impact of Prime Minister Narendra Modi’s cashless and Digital India campaigns.

In a shock announcement on November 8, PM Modi demonetised old notes of Rs 500 and Rs 1,000, which made up for 86% of the country’s total currency, setting in the biggest cash crunch ever. As cashless transactions surged, Banks wanted to capitalise by levying transaction fees in the range of 0.25% to 1% on card payments.

Pump owners retaliated against it.

Ajay Bansal, president of All India Petroleum Dealers Association told a leading financial daily that even though the association supports PM Modi’s cashless campaign, but pump owners are “being forced by the banks and the Reserve Bank of India” to take an action as there will be no margins left after paying the levy.

On the other hand, not taking transaction fees is a loss for the banks – the higher the number of cashless transactions, higher is the loss.

Banks earn by levying transaction fees on merchants. In case of retail outlets, the transaction fees are even higher, up to 2.5%.

Read | Rail tickets, petrol, insurance to cost less in big digital push

When demonetisation started, automakers tried to convince banks to waive off transaction fees at all dealerships. Companies such as Hero MotoCorp and Honda requested banks not to take transaction fees of 2% on card payments at dealerships on bookings of vehicles.

Mobile wallet companies, such as Paytm and MobiKwik have also waived off transaction fees in order to grab new customers, but their losses continue to grow.

Once the dust settles down, banks and mobile wallet companies might start levying the transaction fees, which might turn the tables as merchants might not be willing to promote cashless payments for an extra cost – killing the purpose of demonetisation.

The change against a “cashless India” might happen even faster than expected as some reports suggest that already over 90% of notes, which were sucked out, have been replaced by new ones.

The petrol pumps, for now, have deferred the decision of not accepting cards until Friday, and have urged the Modi-government to intervene into the matter.

Read | Cheap petrol to discount on rail tickets: Highlights of steps for cashless India