Costs associated with using Debit Cards

India has roughly around 25M credit cards and 670M debit cards (data as of YE 2016). It’s no surprise that we Indians love using debit cards over credit cards — thanks to their ubiquity, ease of use, and not having to worry about interest fees and spend limits. There’s a general perception that using debit cards is almost free — the charges are small enough. Are they really? Let’s take a closer look at all the charges you pay for, just to use your debit card — whether to use it at an ATM to take out cash, or whether to transact.

1. Issuance Fees and Annual / Renewal Fees

Most debit cards — especially those issued by the top banks (Card Issuers) carry an annual fee / renewal fees, irrespective of the amount that you have in your savings or current account to which the debit card is linked.

Let’s look at some HDFC Bank Debit Cards are their annual fees:

• JetPrivilege HDFC Bank World Debit Card: Rs. 500 + applicable taxes
• Platinum Debit Card: Rs. 750 + applicable taxes
• Rewards Debit Card: Rs. 500 + applicable taxes
• EasyShop Debit Card: Rs. 150 + applicable taxes
• Titanium Debit Card: Rs. 250 + applicable taxes.

(The annual charges are waived off in few cases — especially when you are a Classic, Preferred or Imperia customer with HDFC Bank — which in other words means, you are an account holder with a reasonably significant relationship value with HDFC Bank)

Similarly, for Axis Bank Titanium Rewards Debit Card, the Issuance fee is Rs.300, while the annual charges are Rs.500.

2. PIN-based Transaction Fees or Fees for Swiping your Debit Card

Post demonetisation, for some time, the Government had mandated that transactions made by debit cards would not be levied any transaction charges. However, come 2017, service charges were re-introduced, much to the ire of the public.

A service charge of 0.25% is levied on debit card transactions worth Rs. 1000 and 0.5% on transactions worth Rs. 2000. For example on transactions of Rs 1000, Rs 2.5 is charged and Rs 10 for Rs 2000 worth transactions.

Funny thing is — this is hardly ever mentioned anywhere. Most Card Issuers claim that debit card usage is free across all merchants except fuel, IRCTC and some specific merchants. Some banks, indeed, do not levy any transaction charge on debit card usage, except at specific merchants like fuel stations, IRCTC, etc.

Hat Tip: Next time any retailer asks you to pay 2% extra because you are paying with a Card, challenge it and decline it. That’s illegal. Merchants use EDC machines to offer convenience, and hence pay a Merchant Discount Rate (MDR) to the bank for every transaction made by the user. Since 2012, the Reserve Bank of India (RBI) has capped the MDR for debit card transactions up to Rs. 2000 at 0.75% and for transactions above Rs. 2000 at 1%.

3. ATM Usage Fees

You use an ATM for 2 kinds of actions:

(a) Financial Transaction: Cash withdrawal, cash payment, credit card payment, etc.

(b) Non-financial Transaction: Services such as balance enquiry, changing the ATM pin, mini statement, and booking a Fixed Deposit.

Based on RBI mandates and bank policies, you get charged for both the above transactions. Policies and rates vary from bank to bank — for the latest schedule of charges, pls refer to your debit card issuer’s terms and conditions.

Note:

• The free transaction limit of 3 transactions is only applicable to Metro cities (Bangalore, Chennai, Delhi, Hyderabad, Kolkata, and Mumbai). For all other locations, the limit is 5.
• The free transaction limit is not applicable to no-frills or small savings accounts.
• Banks can choose to offer a higher number of free transactions if they wish to.

Charges at International ATMs: The per transaction charge at international ATMs in foreign locations is much higher. For example, HDFC Bank charges Rs. 25 + taxes per Balance Enquiry & Rs. 110 + taxes per Cash Withdrawal for use at non-HDFC Bank International ATMs.

Other Miscellaneous Charges

1. Overdraft Fees / Decline charges for insufficient balances: Transactions declined at other bank ATMs anywhere in the world or at a merchant outlet / websites outside India due to insufficient funds will be charged per transaction. Varies from bank to bank. For instance, HDFC Bank charges Rs.25 + taxes per such transaction.
2. Cross-currency mark-up charges on foreign currency transactions: Typically 3 — 3.5% + applicable taxes on foreign currency transaction carried out on Debit Cards.
3. Replacement / Reissuance Charges: If you lose a debit card and someone fraudulently uses it, you might be out a lot more money than if the thief had stolen and used your credit card. Banks charge an amount to block and issue a new debit card — typically around Rs.200 + applicable taxes.
4. ATM PIN Generation Fees
5. Duplicate PIN through snail mail
6. Charge Slip Retrieval Charges: Occurs in certain instances. Can be as high as Rs.250 per retrieval.

All in all, if you are a habitual spender through debit cards, you actually end up spending a not-so-insignificant amount on all these card fees and charges.

The best way to avoid these charges: migrate to mobile payments. Yes, in most cases, you lose out on rewards and debit card specific offers, but it’s much more convenient. Pay your bills online. Make use of your bank’s online platform (netbanking) or download their mobile app to conduct financial transactions.