The Hindu Business Line : Banks hiking merchants’ fees on card swipes

Mumbai, Sept. 8 Faced with shrinking interest incomes, banks are looking at all possible ways to increase their fee income. One way, they have decided, is to increase the merchant fees on their point of sales (POS) machines.

ICICI Bank, HDFC Bank and Axis Bank have started issuing letters to retailers informing them about the fee hike. The three banks account for 90-95 per cent of the market share in this segment.

Banks charge a merchant fee from any institution which uses its POS machines on which credit or debit cards are swiped. There are two kinds of fees – ‘on us’ fee and ‘off us’ fee.

One is for swiping the bank’s own cards on the POS machine and the other for swiping cards issued by other banks.

The fee is usually based on the merchant’s ability to generate business. It typically varies between 1 per cent and 1.1 per cent of each transaction. But there are also instances where the fee is as low as 0.6 per cent.

Now banks are hiking the fees by 0.1-0.2 percentage points. For some of the premium cards, the hike is as large as 0.8 percentage point.

‘Unsustainable’

When a card is swiped, the bank has to pay an interchange amount to Visa or MasterCard, the two major card companies. “We were offering very low fees in order to acquire customers. But including the cost paid to the card companies, it was becoming difficult for us to sustain the low fees,” said a banking official. “We are only rationalising prices.”

‘Problem for us’

Mr Govind Srikhande, Chief Executive Officer, Shoppers Stop, said it had received letters on the hike from ICICI Bank about two to three weeks back, and that the company had requested the bank not to hike the fees.

“It is a problem for us because it will take away more from our margins. As retail prices are fixed, we have no scope to increase the Maximum Retail Price. It will hit at our profits,” he said.

About 56-57 per cent of payments at Shoppers Stop are made through cards, he added.

Mr Rajan Malhotra, COO, Big Bazaar, also said the company had received letters from ICICI Bank about 15-20 days back. Big Bazaar is exploring options such as giving the banks a committed swipe business, he said. “We are in various stages of implementation. Our costs are going up and we have to find ways of recovering them. We cannot pass it on to our customers,” he said.

‘Normal practice’

HDFC Bank has increased the fees in certain segments, and this is normal practice, said a senior official.

According to Mr Rajanish Prabhu, Business Head - Merchant Services, HDFC Bank: “Pricing is an integral part of our overall strategy and is reviewed on a continuous basis. Our pricing model is dynamic and is based on the overall relationship with the merchant and is in line with the Retail Bank strategy. Final price points are also decided based on cost fluctuations, margin expectations, various market developments and other similar influencing factors,” he said.

Officials from ICICI Bank and Axis Bank declined comment.