Be prepared to pay the penalty for a failed electronic transactions

With increasing use of online banking today, customers are using this channel for paying their household bills through credit cards or through direct transfer from their bank accounts moving away from the system of payment through cash or cheque. While this appears to be exceedingly convenient for customers, this payment arrangement transfers some of the risks involved in the system directly onto the customers.

If there are any operational problems or issues with the system of electronic transfer of funds, most financial institutions charge an unreasonably high penalty to the customers, even if the customer is not at fault. For instance, in case of a default in payment, rather than looking into the issue of which party is responsible for the default, customers are served with arbitrary charges as penalty. Thus, if there are insufficient funds for a scheduled payment, banks often charge as much as $35 to $50 for a failed transaction, even though it has been estimated that it costs only 27 cents to process a direct debit payment.

It is clearly not a level playing field for the two parties involved in the process of electronic transfer of funds. There is a growing feeling among regulators that customers should be charged only for a default that can be attributed to them and not where it is not the customers but the bank has been responsible for a failed transaction and default occurring due to some system glitch. Moreover, even in case of defaults that can be unarguably attributed to customers, the regulators feel that the penalty must be within a reasonably accepted range and not exorbitantly high as is the practice today in most of the banking institutions. There are instances where banks charge customers 60 times or 90 times the cost involved in processing a failed transaction.

There have been some apprehensions, though that if there is some move from regulators to check the quantum of penalty charged by banks in case of defaults, it may prove to be counterproductive. People in the banking institutions feel that this may ultimately hurt customers in a different way as the lower fees may push up the interest rates to compensate for the loss to the bank on this front.  Moreover, banks will have less incentive to provide innovative solutions that make it easier for the customers to avoid paying these fees, because putting a system in place that works perfectly for customers with utmost transparency requires continuous investment in technology.

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