RBI approves cash withdrawal using debt card at merchant establishment

In many countries worldwide you can withdraw cash at retail outlets using point of sale terminals through debit cards. Recently the Reserve Bank of India (RBI) has given approval for this facility. At present you can use debit card to withdraw cash only at ATMs. But now you will be able to draw cash at the nearest shop using the debit card.

As per RBI approval you can withdraw cash using the swipe machines at retail shops. In the beginning around 14.3 crore people holding debit cards issued in India will be able to avail this facility. Debit card holders can withdraw cash up to Rs 1,000 directly from merchant establishments. Moreover you are not required to purchase anything from the shop to avail this facility. But you might have to pay a fee of 2-3%.

In case a cardholder does purchasing at the same shop then the receipt must have a separate indication of the cash withdrawal. To offer this facility the swipe machines, or point-of-sale (PoS) terminals, will have to be upgraded and it might take a month for the smooth flow of this service. The banks might divide the service charge with retailers in order to persuade them to offer this service.

Currently for every card transaction merchants have to pay fee of 1.5-2 per cent. The customers of smaller towns and rural areas will be most benefited from this service, where few ATM machines are available. This facility will also increase the use of debit cards ast PoS- enabled merchant establishments. The retailers offering this facility will be able to deposit less amount of money which they are required to deposit in a bank every day as he can use this amount to disburse it for a fee. For banks increase in usage of debit card means increase in fee income.

The RBI stated the merchant establishment which has been designated by the bank after thorough checking can avail this facility. RBI has clearly stated that the merchants will offer cash withdrawal facility at PoS terminals irrespective of the fact the debit card holder does the purchasing from that shop. In the near future it might be possible to set up ATMs therefore a POS terminal can be a cheaper alternative for banks. Once smooth operation of this service starts the customers living in rural areas won’t have to travel to withdraw money.

At present most of the people use their debit card to withdraw money from ATMs and only 2-3 percent of PSU bank customers make payments through debit cards, whereas around 14-19 percent of the customers of private and foreign banks use debit card to make payments.

The RBI has said the boards of banks have to decide to whom to offer this service after taking into consideration the product profile, risk sensitivity and risk alleviation measures. Once the board has given the approval the banks will be required to get one-time approval from the RBI.

The RBI decision to allow debit card holders to withdraw money at POS terminals reveals that there has been a steady increase in the number of terminals at different merchant establishments. By the end of May 31, 2009, the number of POS terminals increased to 4.70 lakh in the country as against about 45,000 ATMs.

Once the cash withdrawal facility at PoS terminals starts bank customers won’t have to depend on either branches or ATMs to draw small amounts. They can simply go to nearby merchant establishment, swipe their debit card and take the cash from the merchant. This move will also help in promoting financial inclusion.

On banks part, to offer this facility they will have to formulate a proper customer grievance redressal mechanism.