Bank Income Generators

Check out this news story:

The story is about banks, who seeing their interest incomes fall, are all set to increase the merchant fees on their Point of Sales (POS) machines.

How did it come to banks hiking the merchant fees on the POS?

The obvious reason behind this is that RBI has hiked CRR and repo rate. So for banks to lend money without charging any interest rate to the card holder for a period of 40 to 50 days (the period of credit) is becoming more and more difficult. The banks had to make some adjustment to cope with this rising interest rate scenario, and this POS rate hike was one way of doing it.

Another reason could be to cover the increase in the non-performing assets (NPA) of the credit card industry. As of now, banks are finding it difficult to control the rise in credit card payment defaults. While the hike will not help to entirely cover the defaults, it could help by defraying some of the losses – a higher POS charge might force the merchant to tap into a more financially sound clientele, thereby reducing defaults.