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IMPS To Pilot Merchant Transactions; Should Not Increase Rates

The Interbank Mobile Payments Service (IMPS), launched by the National Payments Council of India (NPCI) has received the approval of the Reserve Bank of India to offer person-to-merchant and merchant-to-merchant transactions, reports Mint. NCPI intends to launch a six-bank pilot for the service.

What you need to know about the IMPS (we have a detailed overview here) is that it has the potential to transform mobile payments in India like no other payment system: at Rs 0.1 per transaction, it is immensely affordable, and with 21 banks (so far) participating – Citibank and Punjab National Bank have just joined – it can be a ubiquitous money transfer and payment service.

The IMPS user base is showing healthy growth, and this is despite inadequate promotion from banks: In May, it reported 11.06 million unique customers, and despite only 5718 transactions, as much as Rs 1.6 crore was transacted through the service, at an average of Rs 2878.58 per transaction, but there is still much more to be done.

Need For Change In The Way Banks Look At Transaction Fees

While IMPS costs banks Rs 0.1 right now, NCPI MD and CO AP Hota told Mint (the headline is misleading) that charges of more than Rs 5 will mean that the service won’t take off.

I think he’s quite right, and it’s time there was a change in the mindset regarding digital transactions, whether money transfer or online ticketing – digital transactions offer a cost saving for banks, airlines and service providers because they’re automated, do not require manual intervention, and are far more scalable. Instead of offering a discount, and hence encouraging online transactions offloading some of that cost saving to customers, many service providers (including IRCTC) charge an additional transaction fee.

On the other hand, more transactions on mobile mean that fewer cheques will be deposited with banks for processing, and fewer visits to banks for withdrawing money, which, as Deepak Shenoy was explaining to me once, is much more expensive. Over a period of time, it would also mean that less physical cash is required to be kept in ATM machines.

So instead of looking to add processing fees for mobile transactions, banks should be encouraging usage, and reducing fees.

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