The recent announcement by the Reserve Bank of India (RBI) to waive off charges on payments made via National Electronic Funds Transfer (NEFT) or Real Time Gross Settlement System (RTGS) exhibits how the government is slowly nudging people towards digital transactions. Till date, the RBI had fixed minimum charges on large-value transactions through NEFT or RTGS for fund transfers which banks then passed on to their customers.
It's time to go digital
Looking at the pros and cons of the RBI's recent decision, Raj Khosla, founder & managing director, MyMoneyMantra.comsays, “Waiver will encourage the digital movement of funds and benefit a large customer segment, i.e., those who prefer using the tech platform of their own bank. Digital payments will, therefore, become more cost-effective, leading to a further expansion of the digital payments footprint in India.”
Transferring money through digital wallets gained ground in the past few years, especially, during the period post demonetisation. The most prominent digital wallets that Indians prefer include PayTm, Mobikwik, PhonePe, and now the most recent Google Pay app. The ease and effectiveness of paying money digitally without having to wait in bank queues explain the growing pervasiveness of these platforms. However, some of them charge money for transferring money from the wallet to bank accounts. “PhonePe does not charge customers for transferring money from wallet to bank accounts. We welcome the move by RBI to waive off NEFT and RTGS charges. Both NEFT and RTGS have developed into strong platforms playing a critical role in simplifying money transfer. Such interventions go a long way in building adoption for the digital payment ecosystem,” says Hemant Gala, head of payments, banking and financial services, PhonePe.
An impetus to digital funds transfer
Recent records published by the RBI highlight growth in monetary transactions through both the NEFT and RTGS methods, be it large-value immediate fund transfers for business houses or small-sized money transfers. According to the most recent details and statistics published by the RBI in May 2019, Rs 123973.82 billion had been transferred between various accounts through RTGS.
Moreover, most people these days transfer money from their salary accounts since NEFT or RTGS done from salary accounts involves zero charges. Also, private banks had waived off charges on NEFT/RTGS long back. CS Sudheer, founder & CEO,IndianMoney.com says, “The RBI has removed charges for payments made through NEFT and RTGS so that banks pass on the benefits. This move mainly helps small traders who deal in small value transactions and operate on small margins for whom every rupee counts. This encourages digitisation of payments and promotes financial inclusion. In case of people transferring money from their salary accounts, this is a transfer and not a payment.”
Do we foresee a paperless economy in future?
The government's focus on promoting digital means of doing business is evident from the way RBI has asked banks to pass on the benefits to customers by charging nothing on NEFT or RTGS transactions. Also, the clearing times for cheques and demand drafts are way more than the minutes it takes to transfer money digitally. This means that money transfer through cash, demand drafts or cheques may come down. Suresh Sadagopan, founder, Ladder7 Financial Advisories says, “Making NEFT/ RTGS transactions free is a way of incentivising people to use digital payment modes. It's an alternative to cheques and this move by the government will hasten the move to paperless transactions.”
The government's strong focus on banking through the digital platform by waiving off the charges is being looked upon as a win-win situation by small business houses. As opposed to paying for every business transaction through cheques, demand drafts or NEFT/RTGS, small traders can now transfer money digitally. This holds true for large business firms too that engage in voluminous, high-value transactions.