Calculating How Much To Charge
Banks are arriving at charges in an arbitrary manner, as they lack accurate data on costing. They honestly don’t know what each product or service costs them. Instead, they offer a total cost or a branch cost which is meaningless. What we need from them is to know what the total transaction cost of the bank is, and how this total transaction cost of the bank is distributed among all services and product lines. A well-run household breaks down how much it spends on each item, rather than just saying ‘oh we spend too much on food.’ Unfortunately, in the face of an item-wise check or audit, many won’t have any detail to show. In the absence of information about the cost of the bank, the pricing has become arbitrary and excessive, especially for the common consumer. This is true not only for cash transactions, but for all banking products and services, which has led to anarchy in pricing of banking services in India.
Generally, in a commercial system, competition should mitigate such anarchy. A shopkeeper who charges too much and does so in an arbitrary manner will get put out of business by someone whose pricing is fair. But that does not happen for banks due to lack of competition.
Competition is inadequate partly because very few new licences are given out, and new licences have been handed out to players who lack the might to foster real competition and cause disruption in pricing for the established players.
Compare this to what has happened in telecom, where the newest player has brought in serious competition. If pricing in the banking system needs to be corrected via competition, it needs the entry of a large number of stronger players with deep pockets. The regulatory guidelines on licences for new banks must be revamped for this purpose.
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