MUMBAI, Aug 19 (Reuters) - Global card payments group Visa is critical of the Indian government's decision to boost adoption of electronic payments by requiring banks and card payment networks to offer no-fee debit card transactions, a senior Visa executive said.
Last month, India's Finance Minister Nirmala Sitharaman said that businesses with annual turnover of 500 million rupees will not have to pay a merchant discount rate on debit card and other digital modes of transactions, excluding credit cards.
The discount rate is paid by the merchant to banks, card payment networks, and other financial intermediaries for handling a digital transaction. For debit cards, the fees are on average between 0.40% and 0.80% of the transaction amount, according to industry officials.
"I find the logic a bit fallacious because the cost is not free ... I am a firm believer in low economics, but no economics student can believe in no economics," T.R. Ramachandran, Visa's India and South Asia head, said on Monday, speaking on a panel at an industry conference.
Ramachandran said if the government, the merchant and the consumer are all saving on the cost of cash via an electronic payments mechanism then the stakeholders should be adequately compensated.
India's Finance Ministry was not immediately reachable for comment on the matter outside of business hours.
Sitharaman had said in her budget speech that the Reserve Bank of India and banks would absorb these costs from the savings that will accrue to them on account of handling less cash as people move to digital payments.
But industry officials say there is still no clarity on who will pick up the tab.
The no-fee debit card plan could hit the fee revenues of banks, which are already burdened with bad loans of about $150 billion.
As of May this year there were 824.9 million debit cards in circulation in India compared with 48.9 million credit cards, according to the Reserve Bank of India.
$1 = 71.4380 Indian rupees Reporting by Nupur Anand. Editing by Euan Rocha and Jane Merriman