Why should we pay for online transactions?

Charges or fees for online transactions are not only an obstacle against consumers but also detrimental to the business growth of such companies and portals

Amarjeet Singh | August 16, 2013



With tremendous growth in technological outreach and internet, more consumers are drawn towards availing services and buying products online. India’s e-commerce market has grown to $14 billion by 2012. About 75% of this is travel-related (airline tickets, railway tickets, hotel bookings, etc.). Various factors like growing internet penetration, increasing spending power, availability of multiple payment methods like credit/debit cards and cash-on-delivery, combined with faster adoption of smart phones and tablets are contributing to the growth of e-commerce. India has become the third largest country in terms of the number of internet and smart phone users. This user base is expanding from metros to small towns.

PhoCusWright, a global travel market research company, says revenue generated through online hotel bookings in India increased by 28% to Rs 3,369 crore in 2012 from Rs 2,634 crore in 2011.

But the convenience comes with a price. With the use of online booking consumers are more vulnerable to cyber-crimes, misuse of personal data as well as to a variety of charges or processing fees for such online transactions. The internet has dehumanised the process which sometimes leaves customers ranting at a computer screen when they have any problem or complaint.

Companies and service providers can make substantial financial savings due to online bookings, payments or purchases. The cost of having and maintaining bricks-and-mortar outlets and human resources to run them is much more that running an online booking system. Such savings can be used to give incentives to consumers for online transactions but it is hardly passed on to consumers.

But most such companies and portals are charging consumers for online booking and payments instead of encouraging by giving rebate to them. Moreover, the information about such charges is not provided beforehand and the user comes to know about it when making final payment or closing the transaction after going through the whole process of registration, selection and feeding all personal information required.

Consumers have to pay not only online booking fee/charges but also applicable bank transaction charges. There is no standard criterion of charging and it is up to the sweet wish of that company, portal, bank and the agreement between them.

Indian Railway Catering and Tourism Corporation Ltd (IRCTC) sells 3-3.5 lakh rail tickets daily. More train passengers are moving from ‘in-line’ to online but despite being a government enterprise, IRCTC charges consumers for online ticket bookings.

The so-called convenience of online booking of movie tickets comes at a cost: usually Rs 10 for a ticket costing up to Rs 100, rising to Rs 20 for a Rs 100-200 ticket and so on. A consumer took the matter to the Bombay high court through a public interest litigation, seeking the implementation of the Maharashtra government order dated April 4, 2013 that restrains the charging of extra fee for online booking of movie tickets. The court has issued notice to theatre chains and online portal BookMyShow.

The Reserve Bank of India (RBI) ordered banks in July 2012 to reduce transaction charges for payments made online through debit cards to a maximum of 1%, addressing a longstanding grouse of consumers and merchants who were paying almost double earlier.

There is urgent need to take stock of the situation by government authorities, regulators, taxation authorities and other stakeholders who are interested in increasing e-commerce to provide better services to consumers and also to promote a paperless economy.

Charges/fees for online transactions are not only an obstacle against consumers but also detrimental to the business growth of such companies and portals. India has great potential in this sector and such transactions should actually be incentivised.

Using the online booking and payment option has wider repercussions for the whole economy. It brings transparency in the economic system and also saves valuable resources.

Let’s come to offline services and the charges. Banks have started charging for some basic services like the ATM-cum-debit card, issuing a cheque book, cash deposit at non-base branches and balance enquiry. Recently most banks decided to charge the account holder for SMS alerts which were earlier free of cost.
The master circular of the RBI dated July 2, 2012 states that it is imperative that the customers are made aware of the service charges upfront. But Moneylife  Foundation found that not a single bank out of a sample of 20 foreign, national and private banks, disclosed the complete list of basic banking service charges that a consumer would be charged during his day-to-day banking activities.

Besides, there is so much variation in the charges imposed by different banks for similar services. Market competition is supposed to take care of such things but that is not what is happening in Indian economy. We are not against reasonable charges for providing services but they should be reasonable, fixed transparently on some criterion, not on the whim and fancy of the service providers.

The Indian Banks Association (IBA) is working like a cartel of banks. The RBI and competition commission of India (CCI), the two main regulators in this case, are soft on anti-consumer decisions and action of IBA. Similarly, in other sectors associations of service providers or manufacturers are colluding to rip off consumers and neither the strict laws and regulations nor the new mantra of market economy are coming to the rescue of consumers. 

The situation with non-banking finance companies (NBFCs) is even worse than the banks’ case. They are more efficient in exploiting the consumer than in doing their business and all the cost of inefficiency is passed on to the latter in the form of higher charges. There is no proper and easily accessible redressal mechanism for consumers, which is available to bank customers. Due to very low financial inclusion, consumers are forced to approach the NBFCs or informal moneylenders in their hard time.

The lack of consumer awareness and lack of proper and effective working of consumer protection mechanism are resulting in exploitation of consumers by the business world. The only option left is collective consumer action throughout the country against such malpractices. There have been some interventions by some consumer activists and organisations but there is need of a national action to force corporates to abstain from such undue charges, to force regulators to have strict monitoring and to policymakers to formulate effective polices to protect interest of consumers.

Amarjeet Singh, a legal professional, is a project coordinator with CUTS International, looking after consumer protection programmes.

(This story appeared in the August 1-15 issue of the print magazine)

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