No free lunch; banks free to charge ATM users: RBI

The RBI Governor Raghuram Rajan on Monday said there was “no free lunch” alluding to the usage of ATM services of other banks for free as it is a cost to home banks.

“The ATM transaction is free to you but not free to the bank. It costs the bank Rs 75 to Rs 100 for those five transactions. The bank has to collect that amount from somewhere and it has to be from customers. But there are two distortions that it creates. First, not everybody is doing the same amount of transactions and (also) are we subsidising using of cash by freeing up ATMs?” Rajan said at FICCI’s banking conclave.

He said that since this increases your bank’s costs, it is passed back to the customer in some form. Ultimately, those who transact more are subsidised by those who transact less.

The RBI has reduced the number of free transactions per month at any non-home bank ATM to 3 from 5 earlier. This will be effective from November in the six metro cities of Mumbai, Delhi, Kolkata, Chennai, Bangalore and Hyderabad. Banks are also allowed to charge their own customers for more than five transactions at their own ATMs.

Rajan clarified that RBI has allowed banks to charge customers but that does not mean that banks have to do so. “If you (banks) like your customers to use free ATMs you can subsidise the transactions. What we have done essentially is (to) let large banks make better business decisions and reduce the hidden cross-subsidy and make it more transparent,” he said.

2-factor authentication

The central bank chief also said RBI is looking at whether the two-factor authentication can be done away with for small payments. “May be we can think about reducing the need for second authentication for low-value payments provided the card provider has systems to protect against misuse and can bear their cost beyond a certain point if the card is misused,” Rajan said.

RBI warned companies against breaking the two-step authentication rule for credit-card transactions.

“It has come to our notice that some firms are bypassing this and clearing transactions abroad breaking the rules. We said don’t break the rules and sent out the circular with this effect and the immediate pushback was that the RBI is against innovation...is slowing the process. Whatever the innovation, breaking the rule is not done. You have to follow the rules,” Rajan said.

A two-factor authentication can be either a personal identification number or a one-time password for transactions done over the internet.

In a notification last month, RBI insisted on a second authentication for all card transactions done on the internet. The notification came after some overseas service companies including much-talked about cab-service provider Uber, which used offshore payment gateways for transactions done in India to sidestep the RBI’s authentication rules.

Rajan said RBI rules were there because they enhanced the security of transactions. “If there is a rule on the book, we don’t allow breaking rules simply because the innovation is cool. We are not against innovation. We very much want the kind of innovation that we are talking about. We just have to make sure that we work our way through it,” he said.

Source : The Hindu