Transaction charges need to be kept at a minimum level to encourage digital payments and make it "ubiquitous" as India is a "cost-sensitive" market, TRAI Chairman R S Sharma said PTI.

Citing the example of the telecom sector, Sharma said mechanism can be worked out to ensure that small payments are financially sustainable.

"There are three things which are extremely important for digital transactions to become ubiquitous - cost, convenience, and confidence. India is an extremely cost-sensitive market...you can't have Rs 5 commission on Rs 100 transaction.

That is not going to work," Sharma said speaking at a seminar on 'Demonetisation to Digital Remonetisation' organized by FICCI.

Urging financial institutions to emulate the telecom sector where the average value of pre-paid digital recharge is Rs 10, is "financially sustainable", Sharma said that charges levied on digital transactions should be based on 'work done' principle, reports PTI.

"My view is that not only in the short run, in the longer run too if the work is done principle is adopted in digital transactions, this whole merchant discount rate (MDR) and other issues will go away. I am not saying that they (banks) should stop earning any money but if they earn money they should earn money in a reasonable manner," Sharma said.

He further pointed out that two per cent charge on credit card transactions would prompt people to use alternative, which is cash.

"That thing has to go in the long run if we want cashless to continue...otherwise there is a danger than once these incentives end, people will revert back to cash, which should not happen. India has to become cashless," he said.

"I think there is a need to reduce these MDR and other digital charges..." Sharma said.

Asked about Vodafone's move to challenge in court TRAI's Rs 1050 crore penalty recommendation for denial of interconnectivity to newcomer Reliance Jio, Sharma declined to comment on the matter.

"This is a free country, every entity has the right of legal recourse and they are well within their rights to go to approach the courts, which is fine. Why should I have any comments, reservation or problems with that," Sharma said on the sidelines.

Vodafone last week told the Delhi High Court that the TRAI's recommendation to the Centre to impose Rs 1050 crore penalty on it for not giving interconnectivity to Reliance Jio was an "arbitrary" decision, reports PTI.

TRAI had recommended imposition of a fine of Rs 50 crore for each of the 21 circles of Vodafone, except in Jammu and Kashmir, coming to a total of Rs 1050 crore.

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