There is a small contradiction in the government’s efforts to promote non-cash payments and its efforts to over-regulate the fees one can charge for the same. You cannot promote an idea endlessly through official subsidies, or cross-subsidies within banks themselves.
Earlier this month, the Reserve Bank of India (RBI) did well to protect bank customers from online and card payment frauds by shifting the onus of compensation substantially to banks. In a notification dated 6 July, the RBI introduced two ideas to protect customers: the concept of zero liability, and another of limited liability.
A customer who loses money due to online fraud or negligence on the part of the bank will be fully compensated. Even in the case of third party fraud, if the loss is reported within three working days, the customer will be fully reimbursed by the bank.
However, in the case of customer negligence, like sharing passwords with other people, the liability will be that of the customer till the fraud is reported to the bank. He won’t be responsible for any unauthorised use of this account once he has reported the transaction. The loss must be reported within four to seven days after receiving alerts from the bank about an unauthorised transaction. Even better, the liabilities of the customer are being capped at Rs 5,000-10,000, and in the case of credit cards with limits above Rs 5 lakh, the liability of the customer is capped at Rs 25,000.
The best part of the notification is that customers must be compensated within 10 working days. This is most important, for the real challenge for a customer is getting his money back after reporting fraud. Banks can routinely fob him off with excuses and delay crediting the money by claiming they are investigating the case.
These customer protection initiatives, which will apply to all online and offline transactions, including e-wallets, are vital if India must rapidly shift to non-cash modes of payment. Since banks are limiting branch and ATM expansions, most transactions will thus happen remotely, increasing the risks of fraud. With the horizontal expansion of banking through Jan Dhan accounts and RuPay cards, confidence in the system will collapse if the poor are defrauded of even small amounts and banks take their own time to settle their cases.
One can imagine the problems faced by, say, a rural customer whose money has been defalcated by an electronic fraudster, if he must go to a distant branch and then file his complaint. The compulsory registration of account holders for mobile alerts is thus a good move, and so is the requirement that frauds can also be reported through SMSes.
The only thing missing in this notification is the question of charges for online transactions. While charges must be kept reasonable to encourage cashless payments, it is unfair to load the cost of digital payments entirely on to banks. If customers are going to be protected from fraud and banks must carry most of the liabilities, it follows that some of these services should be paid for by customers. Very low value transactions and spends up to certain limits can attract nominal charges, but payments by the rich in five-star restaurants or for large purchases can be higher.
It also does not make sense to prevent banks from charging for excess ATM usage. The management of ATMs and their upkeep, including the everyday logistics of loading them with cash, costs banks money, especially when you add the cost of real estate rentals, air-conditioning and security. Beyond a certain number of minimum free transactions, banks should be free to charge their customers as per their own policies. In a scenario where competition is increasing in the banking sector, especially with the launch of payment banks, the fight for customers will by itself force banks to keep charges reasonable.
The RBI needs to make sure that bank customers are not fleeced by unfair charges, but it equally must not mollycoddle customers who can afford to pay or who overuse their right to withdraw cash from ATMs when cash is needed less and less for transactions in the age of digital banking.
(This post was first published in DB Post)
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