Debit card charges in vogue as banks sense revenues

Banks have started levying annual charges on automated teller machine (ATM)-cum-debit cards ranging from Rs 50 to Rs 500. Bankers are saying this is a small price customers have to pay for all the convenience they enjoy.

The banking sector could see a revenue generation of over Rs 400 crore from this charge annually. State Bank of India (SBI), the country's largest bank and the largest issuer of debit cards with a card base of 20 million, is the latest to join the list levying this charge. SBI is charging Rs 50 per card per annum. This means, SBI will earn Rs 100 crore under this head.

While private sector banks such as ICICI Bank, HDFC Bank charge debit cardholders an annual fee of Rs 100, customers of multinational banks such as Standard Chartered and HSBC will be shelling out nearly Rs 150-200 annually.

ICICI Bank links the annual fee on its debit card to the average balance maintained by its account holders. For instance, the bank does not charge its corporate salary customers or high-networth individuals for debit cards. Citibank and UTI Bank charge their customers a one-time issuance fee in addition to the annual charges.

Citibank, which has a large kitty of co-branded debit cards with MTV, Shoppers' Stop, Indian Oil, etc, charges a one-time payment of Rs 100 on every issuance. In addition to the one-time fee, the bank also levies an annual fee ranging between Rs 250 and Rs 500, depending upon the card features.

UTI Bank levies an issuance fee of Rs 95 and goes on to charge an annual fee of Rs 50. Out of the total debit card base of over 40 million, only a negligible number is used for transactions at shopping outlets.

Major costs that banks run into are on system automation, linking bank's network to Visa or MasterCard, licence, interchange and switching fees.

SBI says the issue of ATM-cum-debit cards involves huge cost, including maintenance of records, telecommunications network and maintaining and managing its centralised ATM centre.

T S Bhattacharya, managing director of the bank said account holders use debit card only for cash withdrawal and that is a huge drag.

ICICI Bank, HDFC Bank, Standard Chartered Bank and HSBC said they have always been charging annual fee on debit cards.

Bhattacharya said, "Customers should start using debit cards at point-of-sale terminals (for paying their shopping bills as they do with their credit cards). Use of debit cards at PoS terminals will help the bank offset costs involved in maintaining their ATM network."

The advent of ATM had seen a rush among banks, particularly private sector players, to make customers shift to the automated channel, a cheaper alternative to bank branches.

Banks had then argued that the cost per transaction at branches was over Rs 50, and in the case of ATM it was much lower in the range of Rs 20-25.

B Madhivanan, joint general manager at ICICI Bank, the country's second largest bank, said, "If the use of debit cards at PoS outlets witnesses a rise, banks could have access to alternative income streams, and then, possibly the annual fee could do a vanishing act."

SBI too feels increased usage of debit cards at PoS terminals will make it viable to make them free. Several banks offer credit cards free of cost as they earn a fee every time a credit card is swiped for making payments.

Banks get 30-70 basis points (one basis point is one hundredth of a percentage point) of the spend on their credit cards as their share of the merchant discount rate (MDR) charged to merchant establishments.

The Standard Chartered Bank's head of consumer banking (Indian and Nepal division), Murali Natrajan, pointed out, "The usage of debit cards at PoS terminals is likely to rise with banks forming strategic alliances to offer a stronger value proposition to the customers and investing on customer education with regards the use of debit cards."

"A large proportion of our expenses are also driven by card features and designing activities, such as cash-back offers, free insurance cover and tying up with retail outlets," said HDFC Bank's head, retail liabilities and payment products, Chitra Pandeya.