After the demonetisation policy, the Indian government set a target to install 10 lakh Point-of -Sale (POS) devices by March 2017. It also waived the 12.5% excise duty and 4% special
excise duty on POS machines to incentivise banks and the manufacturers. While the doubling of POS terminals
doubled transactions, the average ticket size of the transactions dropped. This has led to a drop in revenue for banks investing in POS terminals.
Deepak Chandnani, CEO, Worldline (South Asia and Middle East), spoke to BE’s Ankita Chakraborty on the inadequate payment infrastructure in India and how multiple digital payment solutions will lead to one payment structure overriding the other.
CEO, Worldline (South Asia and Middle East)
Q. What are the trends in user habits post-demonetisation?
A.Worldline, as a large processor of transactions, has witnessed interesting trends after demonetisation. There has been an increase in both points of acceptance and number of cards/issuance instruments, resulting in
significant growth in transactions. With more small value transactions happening daily, the average ticket size has reduced. The usage of debit cards on POS and payment gateways has increased. Earlier, credit cards were used more for transactions of high value and debit cards were used for smaller purchases. But now, both types of cards are being used for small and large purchases. What is more interesting is that consistently for the past four months, debit cards have contributed to 75% or more of payments made at POS, which points to a definitive change in consumer behaviour.
Q. Please comment on the government’s move to incentivise digital payments and acceptance through Lucky Grahak Yojana and Digi-Dhan Vyapar Yojana?
A. The government first started with incentives for merchants to increase the reach of POS terminals. MDR waivers/reduction, excise duty waivers and tax incentives have helped in that respect. Now, the government is incentivising merchants through the Digi-DhanVyaparYojana to encourage trial and acceptance of more small ticket digital transactions. However, improvement in acceptance needs to be complemented with increased usage of digital channels. With schemes like Lucky Grahak Yojana, the government is targeting consumers to spend as little as `50 through digital means. Recently, a customer of Central Bank of India (CBI) won `1 crore in the lucky draw, resulting in a flurry of news about the Yojana, which will further encourage people to adopt digital transactions.
Q. Is the payment infrastructure adequate in India?
A. The payment infrastructure should be adequate from the issuance side as well as from the acquiring side. On the issuance end, the infrastructure is sufficient now, owing to large scale initiatives of the government like Pradhan Mantri Jan-Dhan Yojana and Direct Benefit Transfer through Aadhar Enabled Payment System that provided bank accounts and card access to a large number of Indian citizens. This is being supplemented with campaigns for Bharat QR and BHIM as well. The
regulator has also taken steps to allow mobile wallets to work as Prepaid Payment Intrument, giving a push to this infrastructure.
But on the acquiring side, there is work to be done. The number of outstanding credit and debit cards is 869
million as of February 2017, vis-à-vis roughly 2.2 million POS terminals deployed, of which around 80%-85% would be active. This is not enough to cater to the large card base. While countries like Brazil and China have 14.8 and 12.5 POS terminals per 1,000 debit cards respectively, India has roughly less than four POS terminals per 1,000 debit cards.
There are aggressive targets given to banks to deploy POS terminals, QR codes and Aadhaar POS, which will go a long way in increasing acceptance infrastructure but this will also require large investments by banks and other entities. The question is, with cash coming back into the system, will merchants continue to welcome digital payments which require them to pay a small fee, or will they return to cash.
Q. What are the challenges to scale up the payment infrastructure in India?
A. There are two parts to improving payment acceptance infrastructure. The first is the physical infrastructure which needs to be deployed countrywide. For this, the government has already taken steps like excise duty exemption for POS terminals manufacturing, introducing the BHIM App for merchants and Bharat QR, a low cost option for acceptance. This has increased the number of acceptance points. The second part is the sustainability of the business model for banks, merchants and other stakeholders. Today, the number of POS machines and transactions has doubled, though the average spends are not as high as before. This reduces the revenue banks earn per transaction, coupled with the reduction in MDR. Right now, the profitability of the business is low for banks but over time, they will benefit as transactions and acceptance increase. The focus should be on incentivising acquirers and providing tax rebates to consumers and merchants for e-transactions.
Q. Now that there are multiple digital payment solutions (POS, QR code, wallets etc), will one payment instrument override the other?
A. The payment market is very dynamic and ever-growing in nature. There is continuous innovation happening in different payment methods. Cash survived when cards were introduced and cards survived when wallets came into the market. Each new payment method makes its own niche. Today, cards
mostly used at ATMs and for over the counter payments, see an
average spend of `1800 while the average UPI transaction, driven by P2P payments, is `3900. IMPS, used primarily for B2B payments, have an average ticket size of `8400. Still, there is enough space for more fin-tech products and players to enter this market.
Q. What does the merchant need to evaluate before offering a payment instrument?
A. The first consideration is related to features. Though each payment system has its unique features, one must choose what suits one’s need. New entrants like wallets, UPI, USSD, and AEPS focus on convenience and the ability to operate with different connectivity technologies while cards are tried and tested over time. The second important consideration is technology. It is not necessary to choose the newest payment method as each has its own segment and all payment instruments can co-exist. One should study the reach, connectivity and service before choosing a method. The third consideration should be convenience. It should be simple to understand, easy to register for and download/install. Completing the transaction should not take more than a few seconds. Fourthly security is an important aspect. Those new to digital payments should look for scheme services like Verified by Visa, MasterCard SecureCode and RuPayPaySecure, and marks of compliance standards like PCI-DSS and EMV that certify the security of these payment methods and channels. One must also be aware of new security threats and what to do when faced with one. Cost and acceptance are also important considerations.
Q. How important is it to ensure digital education for consumers and merchants and to create robust fraud prevention mechanisms?
A. Post-demonetisation, it is all the more important that both consumers and merchants are educated in digital payments as there are a large number of new users in the system. Consumers should be educated and vigilant when it comes to payment fraud. One must pay heed to all the warnings that banks give. There will always be new fraudsters trying to cheat the system. Hence, there is no harm in making an effort to know more and safeguard oneself. Payment service providers, banks, schemes and other parties to digital transactions must invest in fraud prevention.