Do Banks Earn Money from Net Banking Platform?

 

Have you ever wondered how banks earn, if they do, from your financial transactions on their net banking platform? For example, when we use their net-banking portal to pay bills or transfer money to other bank accounts using NEFT (which is known to be free), do banks earn any money?

I searched the internet sources and while one source gave a simple answer saying net banking is a feature and not a profit center for the banks, further searches told that there is more to the story. 

When you transfer money from Bank #1 (your savings account) to Bank #2 (another of your savings accounts) using NEFT via Bank #1’s NetBanking, Bank #1 does not earn money from your NEFT transaction. NEFT charges (if any) are regulated by the RBI, and banks have made NEFT free for savings account holders, especially after RBI waived processing charges for NEFT/RTGS in 2019. Even Bank #2 (Receiver) does not earn money. The receiving bank is obligated to credit the beneficiary account without charging any fee. The RBI mandates that beneficiaries should not be charged for receiving NEFT/RTGS payments.

So, who might earn (if anyone), from your free NEFT transactions? NPCI or RBI: These institutions operate the NEFT infrastructure and may charge nominal fees to banks, but not to customers.

Why do banks offer free NEFT and online transfers? Even though you don’t pay a fee, banks still have strategic incentives to offer and maintain these services:

1. Customer Retention & Engagement

- Offering free and seamless transfers keeps customers loyal.

- It encourages users to keep their primary banking relationship with that bank, which opens doors for cross-selling: - Credit cards, Loans, Investment products, Insurance, etc.

2. Cost Savings Over Branch Visits

- Digital transactions are far cheaper for banks than handling cash or in-person transactions.

- Encouraging online transfers reduces the load on physical branches and call centers, saving operational costs.

3. Data Monetization & Insights

- Banks gain valuable insights into your spending patterns, preferred merchants, and financial behavior.

- This data helps them: Offer personalized products, Improve risk profiling and target you with relevant offers

4. Float Income (Short-Term Interest)

- Even though NEFT is fast, there can be short settlement windows (especially on weekends or holidays). During this time, banks may earn interest on the funds before they’re credited to the recipient.

5. Regulatory Compliance & Brand Image

- The RBI mandates that NEFT and RTGS be made available 24x7 and encourages zero charges for savings accounts. Offering these services enhances a bank’s reputation and aligns with financial inclusion goals.

6. Indirect Revenue via Partnerships

- Some banks partner with payment gateways or aggregators (like BillDesk, Razorpay) and may earn small commissions on certain types of transactions (e.g., bill payments, recharges).

Bottom Line:

Even if banks don’t earn directly from your NEFT transaction, they benefit indirectly. And they also earn a sum in the form of float income (the interest banks earn on funds that are temporarily in their possession before being credited to the recipient).

- Rahul

Note: This article includes inputs from AI model.