State Bank of India (SBI) plans to remove transaction charges on point-of-sale (PoS) terminals for merchants who have an annual turnover less than Rs20 lakh, in a bid to boost cashless payments.
“We are looking at removing MDR (merchant discount rate) for merchants who have a turnover of Rs20 lakh and below on our own,” said Arundhati Bhattacharya, chairman of India’s largest lender, on Monday.
The decision to do away with transaction charges for small merchants comes days after the government’s waiver expired on 31 December. Last month, the government had said that merchants would not be charged this fee on PoS transactions at their stores.
Currently, banks such as SBI charge an MDR of 0.25% on transactions less than Rs1,000. They charge 0.5% for transactions between Rs1,000 and Rs2,000 and 1% for those of higher value.
“We expect that removing MDR for these small merchants will help in further increasing the number of PoS terminals going ahead,” said Manju Agarwal, deputy managing director of corporate strategy and new business at SBI.
According to Agarwal, the bank already has a network of 3.93 lakh PoS terminals and is adding more as demonetization sees a surge in digital payments. SBI is also the largest issuer of debit cards in the country.
“Earlier we used to issue about 6,000 machines a month. These days we are doing well above 1,000 machines per day. Often we are not able to meet demand as the service providers are not able to keep up with higher production levels,” Agarwal said.
The bank has added about 45,000 new machines in the two months since demonetization.
“As far as the overall scheme of things goes, waiving off MDR would be a small cost for a large bank. Even as a long-term business strategy, waiving off these charges will help in pushing adoption,” said Saurabh Tripathi, senior partner and director at The Boston Consulting Group in India.
“Once you have achieved optimal adoption and merchants see a reasonable number of transactions, charges may be introduced,” he added.
Since Prime Minister Narendra Modi announced the invalidation of Rs500 and Rs1,000 notes on 8 November, effectively taking away 86% of the currency by value out of the system, banks have begun making efforts to publicise cashless modes of transactions. Swiping cards on PoS terminals is one of the most preferred modes of cashless transactions as debit and credit cards are accepted at large retail services outlets like shopping centres, movie halls, restaurants and supermarkets.
As on 31 October, there were 2.73 crore credit cards and nearly 74 crore debit cards in the country. However, the card acceptance infrastructure continued to be limited at a little over 15 lakh PoS terminals. Typically, a terminal costs Rs8,000-12,000, which could drop after a waiver of excise duty and special additional duty on all components used in its manufacture.
The government has revised its initial target of one million new PoS terminals by 31 March to two million terminals, resulting in a race to the finish.
Apart from SBI, other large banks like ICICI Bank, HDFC Bank and Axis Bank are in the business of providing PoS terminals.
Still, transitioning to a cashless economy will not be easy. The global capacity for PoS terminal production is only 14 million, which severely limits the ability of banks to expand their network, Mint had reported on 1 December.