E-Payments – A viewpoint from the Transaction Cost perspective

As per a recent article in the economic times, the Bank of Baroda will not levy any charges on digital transactions for the next three months. This is in the wake of Coronavirus pandemic where Bank of Baroda is looking to promote digital payments and encourage more customers to avail banking services digitally, without visiting branches.

This is crucial at a time when people across the globe are resorting to social distancing, have adopted to work from home and minimized non-discretionary activities amidst the corona outbreak.
Analysis Based on Transaction Cost Economy:
While banks charge a nominal fee as part of the transaction charges, this fee will currently not be charged by the bank for three months. As a result, this will impact the performance of the financial institute this quarter during this pandemic situation. Still, bank at the same time wants people to use digital payments more to avoid the spread of virus caused due to the usage of debit/credit cards at the POS terminals or ATMs. This simply means the country is more focused on the well-being of the consumers rather than only focusing on the economy. On the other hand, this charge is still applicable for transactions done using plastic cards at POS terminals.
Bank has levied the transaction cost to make the total cost of transaction competitive. This is also a win-win situation for the micro business operators as the bank is making mobile payments affordable.
The economy is taking its toll and having significant constraints; the card industry is hugely affected with the pandemics leading growth on digital payments and the way people transact. It is evident that the digital payment sector is likely to grow, card industries are anticipating an overall downturn in business due to the fear of the virus spread and decrease in consumer spending.
With the current situation and least or no usage of plastic cards, the card industry is bound to face a loss. Companies such as Mastercard and Visa have cut their predictions for revenue due to the COVID-19 scare. While the usage of card payments has dramatically decreased and the full economic consequences of the pandemics on the card industry overall are still unclear, card industry is bound to experience 2.5 to 3.5 percentage lower in revenue for the current quarter.
Due to the travel ban and a global lockdown, the usage of plastic cards is minimal that is affecting the transaction cost which merchants pay to the banks for the use of POS/Cards which is currently at minimum. The sale of POS terminals is also declining at this stage which is also affecting the card industry.
In a similar context, PhonePe, a digital payments platform, launched new features on the “Stores” section of its app in a bid to enable home delivery of groceries and essentials and contactless payments for its users. With the Pay Now feature on the “stores” page allows customers to make payment remotely without the need for scanning any QR.
While these features enable merchants to open their shop as per the Govt regulations and keep their business running, PhonePe has witnessed a three-fold increase in activity on the Stores page and a 50% rise in daily traffic on its platform.
As a result, PhonePe and the merchant will benefit the transaction cost, which is a win-win situation for both.

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