Frost & Sullivan: India is Currently the 13th Largest Non-Cash Payment Market Globally
POS
ram@justransact.com
18-06-2014 00:00:00
Frost & Sullivan: India is Currently the 13th Largest Non-Cash Payment Market Globally

POS terminals are a computerized replacement for a cash register which includes POS printers, touch enabled systems or even personal computers which have the ability to process credit and debit cards and track orders and billing. The electronic payment market is progressively growing in India with shift in consumer preferences to make card-based payments. Ease and convenience of purchase for cardholders is driving the market, wherein merchants are also ensured of a safe and secure transaction thus offering a wide range of payment options to consumers.

In 2013, credit, debit, and other electronic payments grew at a rate of 35 per cent from the previous year in terms of payment transactions. POS terminals shipment volumes in the country are anticipated to grow from 0.8 million units in 2013 to 1.1 million units by 2015 growing at a CAGR of 17.2 per cent.

Almost 80 per cent of the retail market in India does not have POS installations to offer card-based payments. The use of plastic money is still nascent and the conversion rate is very high which acts as a huge opportunity for POS installations. Further steps to encourage the use of plastic money will help to create awareness amongst the unbanked rural population (which is about 60 percent) to have banking facilities and hence own a transaction card. In addition, it is noted that there is lack of standards, which necessitates manufacturers to make customized terminals for clients. Lack of client demand poses an issue in terms of economies of scale thus making it expensive for end users.

According to Niju V, Director, Automation & Electronics, Frost & Sullivan, “India is currently the 13th largest non-cash payment market in the world with a high potential to grow significantly as more merchants install POS terminals and accept card payments.” He further adds, “Despite the high consumption volumes, there is very minimal local manufacturing or assembly activity. While local manufacturing is restricted to just local assembly, we are highly reliable on imports for the entire electronics part in the product. The cost of investment involved in component manufacturing and also the Euro Master Visa (EMV) certification acts as a huge hazard for local manufacturers to explore this option.”

Design capability, Electronic Manufacturing Services (EMS), and Printed Circuit Board (PCB) development are some of the key strengths in this industry but the critical challenge lies in the lack of local feeder industries availability and hence most of the components are imported. This creates a gap in the development of a local ecosystem for manufacturing the terminals.

“There is minimal amount of local manufacturing present wherein electronics are imported and a mere assembly is carried out locally. Lack of fabs and foundries for electronics manufacturing and a high certification cost acts as major challenges to the local manufacturers. Although the presence of a sustained and growing demand for POS terminals is a key strength for the industry, there is no capability in India to cater to such huge volumes thus making it cheaper for manufacturers to import in bulk from China, Taiwan, etc.” opines Niju V.

Reduction in sales, VAT and excise duty would attract more manufacturers to consider local manufacturing. EMV certifications, which are a mandate for POS terminals authorization incurs significant cost and is apparently a roadblock for local manufacturers. This development has created the need for an expansion of a National switch like NPCI. The expansion will act as a large clearing houses and will abrogate the current VISA/ Master/ Maestro certifications thereby reducing the cost for local POS terminal manufacturers. Lack of standards or policies and incentive for product design paves way for cheaper product imports as substitutes. Devising an appropriate manufacturing standard will help in manufacturing of quality products and help develop a local manufacturing ecosystem.POS terminals are a computerized replacement for a cash register which includes POS printers, touch enabled systems or even personal computers which have the ability to process credit and debit cards and track orders and billing. The electronic payment market is progressively growing in India with shift in consumer preferences to make card-based payments. Ease and convenience of purchase for cardholders is driving the market, wherein merchants are also ensured of a safe and secure transaction thus offering a wide range of payment options to consumers.

In 2013, credit, debit, and other electronic payments grew at a rate of 35 per cent from the previous year in terms of payment transactions. POS terminals shipment volumes in the country are anticipated to grow from 0.8 million units in 2013 to 1.1 million units by 2015 growing at a CAGR of 17.2 per cent.

Almost 80 per cent of the retail market in India does not have POS installations to offer card-based payments. The use of plastic money is still nascent and the conversion rate is very high which acts as a huge opportunity for POS installations. Further steps to encourage the use of plastic money will help to create awareness amongst the unbanked rural population (which is about 60 percent) to have banking facilities and hence own a transaction card. In addition, it is noted that there is lack of standards, which necessitates manufacturers to make customized terminals for clients. Lack of client demand poses an issue in terms of economies of scale thus making it expensive for end users.

According to Niju V, Director, Automation & Electronics, Frost & Sullivan, “India is currently the 13th largest non-cash payment market in the world with a high potential to grow significantly as more merchants install POS terminals and accept card payments.” He further adds, “Despite the high consumption volumes, there is very minimal local manufacturing or assembly activity. While local manufacturing is restricted to just local assembly, we are highly reliable on imports for the entire electronics part in the product. The cost of investment involved in component manufacturing and also the Euro Master Visa (EMV) certification acts as a huge hazard for local manufacturers to explore this option.”

Design capability, Electronic Manufacturing Services (EMS), and Printed Circuit Board (PCB) development are some of the key strengths in this industry but the critical challenge lies in the lack of local feeder industries availability and hence most of the components are imported. This creates a gap in the development of a local ecosystem for manufacturing the terminals.

“There is minimal amount of local manufacturing present wherein electronics are imported and a mere assembly is carried out locally. Lack of fabs and foundries for electronics manufacturing and a high certification cost acts as major challenges to the local manufacturers. Although the presence of a sustained and growing demand for POS terminals is a key strength for the industry, there is no capability in India to cater to such huge volumes thus making it cheaper for manufacturers to import in bulk from China, Taiwan, etc.” opines Niju V.

Reduction in sales, VAT and excise duty would attract more manufacturers to consider local manufacturing. EMV certifications, which are a mandate for POS terminals authorization incurs significant cost and is apparently a roadblock for local manufacturers. This development has created the need for an expansion of a National switch like NPCI. The expansion will act as a large clearing houses and will abrogate the current VISA/ Master/ Maestro certifications thereby reducing the cost for local POS terminal manufacturers. Lack of standards or policies and incentive for product design paves way for cheaper product imports as substitutes. Devising an appropriate manufacturing standard will help in manufacturing of quality products and help develop a local manufacturing ecosystem.

-K Ramanathan ram@justransact.com


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