Friday, 30 May 2014

Debit Card Annual Fees - Why most customers shouldn't be charged?

Published on Moneylife at

The banking industry has evolved in a great way and today, we are almost at a stage where everyone has a bank account. Those of us living in cities could be having 2 and those living in metros could have 3-5 accounts. I remember reading somewhere that the upper middle class has at least 6 bank accounts per family. From being a privilege for the wealthy and for those working in the Government services, banking has become a basic necessity of life. In fact, most parents get a bank account in the name of their as soon as they get him/her in to the school. How could they not? After all, a whole bunch of bankers run around them explaining the advantages of opening a child account, how it could help the kid become responsible, how it will help in education, and so on. The moment you open a bank account, a recurring deposit in the name of the kid and a life insurance policy are up next. That's okay. After all, the world is growing.

Banks want to have their cake and eat it too. Guess what, they have been successful at it

Over the last many years, I have been looking at the changes happening in the banking sector. After computerization of the banking industry, banking has more to do with marketing that with calculations. The computers and software take care of all the calculations and thus, the banks are now better positioned to use human resources to generate revenue. Not so long ago, a bank employee would spend majority of his time in accepting deposits and making payments across the cash counter, making him a cost center for the bank. Modern bankers (like ICICI Bank, HDFC Bank, etc) aggressively marketed their products by showcasing their services like the ATMs, Internet Banking, Phone Banking, etc, making them a revenue center.

Inter bank fund transfers through internet banking attract charges too. The internet banking was supposed to benefit the bank by reducing the cheque clearing work, thereby leaving behind a lot of time for bank employees to work on other fronts. Its a different story that the phone banking, which was supposed to help customers on a toll free number, is now offered on a paid line. So, all these services that came up to help the customers have helped the banks more than the customers. Of course, no one can deny the great volume of convenience we enjoy today. The point I want to make is that, all that was free, now comes at a cost.

Even SMS sent to customers are subject to charges now. The SMS initiative came as a measure to ensure safe banking and now, it costs the customers to ensure that he banks safely. Somehow, it doesn't convince me that my bank account is not safe with the banks with this paid SMS facility.

Debit Card Annual Fees - A trap

Before declaring charges for SMS facility, the banks introduced annual fees for debit cards. This one is perhaps the most annoying charge that today's customers pay. On a personal front, I had nearly 10 debit cards on my name, some time ago (side effects of working in the banking and financial services industry). One day, I realized that I am paying a lot of money in the name of 'Debit card annual fees'. At Rs 110 per card, I was paying almost Rs 100 a month. But then, I would hardly use those cards. I started closing those accounts, one by one, and yet, I was left with 5 of them. Yet again, paying Rs 500 plus taxes for no reason whatsoever made no sense to me at all.

Banks benefit more in terms of times and cost than the customers

Banks came up with an idea of ATMs in order to save time for customers and more importantly, for themselves. While customers do benefit from these cards, the banks benefit far more. Imagine the bankers sitting around and processing cash withdrawals of Rs 100-1000 to thousands of customers everyday in today's world.

A large number of customers still do not extensively use cards

It is a well known fact that a large number of customers who possess these cards, especially the ones in rural areas or the ones in business, seldom use these cards. Sole proprietors and, to some extent, Partnership firms have cash on hand, which they use for their daily expenses and this cash is received by them in the course of daily business. Most of their withdrawals are in the form of payments to third parties by cheques or transfers. So, the card lies in their pockets or lockers and they keep paying the annual fees.

Use of debit cards for shopping is very low

Banks promoted debit cards saying that these cards can be used at other bank ATMs as well as be swiped on merchant terminals. However, the number of customers using debit cards for shopping is very low. Most customers who have a credit card would consider swiping their credit card and thereby, getting more than a month's time to pay the amount, rather than swiping a debit card where the amount goes off immediately. It is only when there are some offers, discounts, cash backs, etc that customers consider swiping their debit cards.

5 transactions only - you are anyways taking money for 6th one

The banks' promotion of debit cards quoting that these can be used to withdraw cash from any ATM doesn't appeal anymore. After all, only 5 such transactions in a month are free and the customer has to pay for the 6th transaction. However, banks have continued to offer unlimited transactions at their own ATMs even today.

Banks should bring back the ATM card

While adapting to technology should be encouraged, banks should also provide for such customers who do not want to use technology that doesn't help them. Its like asking a banker to learn Hadoop or Big Data, as they are the latest technologies. I guess there are some banks who are still issuing ATM cards on request. In fact, I got an ATM card from one of the leading private sector bank on placing a request for the same.

There was absolutely no need for the bankers to do away with an ATM card and make the customers opt compulsorily for the debit card. An ATM card is a boon for those customers who do not use the ATM often or do not intend to shop using it. Banks are making big bucks with these charges but it is time they realize that they focus on tailored solutions than making generic products. While many appreciate the progress from ATM cards to debit cards, there are many customers out there who do not find any meaning in shelling out a hundred rupees every year for no real reason. In fact, there are awkward situations when such charges result in a drop in balance, and such drop results in a cheque bounce. Online consumer forums are filled up with such complaints.

Reintroducing ATM cards would be a friendly step to help customers who have too many debit cards, or those who seldom use them. Levying an annual fee on all cardholders could be legally right but when you look it from the moral or customer delight perspective, the business has got it wrong. Abolishing the annual fees in totality would be more of a dream for customers.

Customers who are not happy with the debit cards should walk in to the branches or write to the bank and ask them to issue them an ATM card in lieu of a debit card.