Economic Highlights

New Delhi, 5 December 2016

Cashless Transactions

BANKS GLOBALLY RAKE IT IN

By Shivaji Sarkar

People in the European Union, the US and Australia are today fighting a different battle. They want freedom from market abuse by the banks, as they find the banks coercive and online cashless transaction a cause for their misery.

Even Nigerians, Singaporeans, Croatians and 99 per cent of ASEANs are protesting exorbitant deductions. They are a harassed lot. Banks deduct charges, many of which are arbitrary and unsubstantiated. They are concerned that deposits erode instead of earning and are not given any notice. The custodians of deposits virtually indulge in pick-pocketing.

Banks thrive on billions of dollar illegal cuts across the world, including India. Both debit and credit cards are expensive and interest rates on even a day’s default are high. The banks charge three per cent or annualised 40 per cent interest, and spice it up with other levies. It is just not the banks alone since most other transactions such as electric or water bills are also connected to bank accounts, and the companies resort to arbitrary deductions, most of which are not even due to them.

Worse, remedies are difficult. It is not easy to file complaints as the process is tardy, tedious and rigmarole. Written complaints sent by post remain unanswered. Electronic complaints usually send a “system generated reply” and do not address the issue. The same is the case in India. There are people who fought with banks for over seven months to get an illegal deduction reversed, including the well-known private banks such as ICICI. In many cases, the fight is longer and there is no guarantee that the illicit levies would be credited back.

Banks, online insurance companies and other financial institutions, it is stated, make a profit on their inhuman and unethical behaviour. The motto is stated to be if you levy 10,000 illicit charges, many would not detect it and not more than 100 persons would take the pains to lodge a complaint. The prolonged battle after that ensures that banks thrive on billions of illicit deductions. Their profits increase and so do the people’s sufferings. This has led to protests everywhere.

The largest consumer class action in Australian history began in the federal court in Melbourne on December 1, 2013, says ABC News, as 38,000 ANZ bank customers appealed over the bank’s fees. Andrew Watson, head of class actions at Maurice Blackburn law firm, says the fees of Aus $25 to 50 is not an accurate reflection of the costs faced by banks when customers are caught out. “We think it is worth about Aus $50 million, but overall we’re running a case for 170,000 bank customers against eight major banks, and that’s worth about Aus $220 million. You might be a dollar short on your account or a day late in your payment and the banks will slug you with a fee that’s out of all proportion for that minor transgression”.

It is no different in the US. Overdraft charges, out-of-network ATM and other fees, reports Startribune, are big business for the US banks, to the tune of $42.3 billion for the year ending on June 30, 2015, according to data analysis group, Moebs Services. Fees have only gotten pricier in 2016. The average out-of-network ATM fee rose from $4.35 last year $4.57, according to a Bankrate.com. “That's like paying an 11.4 per cent tax on a $40 ATM withdrawal, but instead of your money going to fund schools, roads and police, that tax fattens the bottom lines of some of the nation’s richest corporations” says Startribune.

Bank of England Governor Mark Carney, on June 10, 2015, announced looming harsher sentences for bankers guilty of market abuse in the UK. The maximum sentences for those found guilty of market abuse should be extended to 10 years from seven years and more kinds of abuse should be subject to criminal charges, according to the bank’s “fair and effective markets review”, commissioned by Carney. “Unethical behavior went unchecked, proliferated and eventually became the norm”, he said.

In Frankfurt, Germany, riots broke out as workers protested against the European Central Bank-led austerity measures that led to high bank charges, job losses and ruining of lives of millions in Eurozone. The banks in the European Union are known to fleece. These have conspired to keep the fees associated with credit and debit cards artificially high, which has diminished competition industry-wide, according to EU Competition Commissioner Neelie Kroes.

The European Commission’s antitrust watchdog delivered a blistering report on the retail banking industry after 18 months of investigation in 2006. “The inquiry has found widespread competition barriers which unnecessarily raise the cost of retail banking services for European firms and consumers,” stated Kroes. But the woes still continue.

Even the US government was not spared of high bank charges. The US Government attorney investigated five banks, PNC Financial Services, PHH Corp, MetLife Inc, Santander Holdings, Citizens Financial Group and Royal Bank of Scotland as to how these overcharged the government for federally-backed home loans and foreclosures, a suspected reason for the 2007 economic collapse.

Banking charges are on the rise across Europe and France is no exception. Indeed, those items for which a charge is made is also on the increase. Clear explanation is mired, in what the French say, vocabulary of banks not always accessible to ordinary mortals. Most French banks do not give a statement unless a fee is paid helping them to fleece customers.

In reality, cashless card transactions are expensive. Most businesses levy a fee on purchasers for using the credit. British Airways and many others have a standard card fee of £4.50. Ryanair levies 2 per cent charge – 30 per cent annualised. It states: “This reflects processing credit card payments, including bank charges”. There are many other hidden charges, the Europeans find including re-issuing security PIN number, sending cheque books or even a letter.

The EU is considering outlawing overcharging in 2018 and limiting charges to 0.02 per cent. However, it too is unsure whether even after such overcharging ranging would be fully stopped or not.

The cashless is virtual cashiering of the customer. Indians need to learn from the world experience. Bankisation of the country should wait till transparent norms are set in place and deductions by financial institutions without permission of the account holder is barred.

(Copyright, India News and Feature Alliance)