After making cash scarce, the Indian government is trying everything it can to push Indian citizens towards digital payments.
Last week, a month after the government announced a decision to withdraw Rs 500 and Rs 1,000 notes almost overnight, Finance Minister Arun Jaitley announced a slew of measures to incentivise the use of digital payments. Among them was a plan to install two point of sale (PoS) machines in over 1 lakh villages with a population of less than 10,000.
The decision has sent banks scrambling in search of such machines. A search that will likely end in China, says a media report.
The largest providers of PoS machines are two overseas firms - Verifone and Ingenico, which control nearly 80 percent of this market. Industry officials that BloombergQuint spoke to said that most banks tend to order from these firms, who in turn manufacture in China.
This means that the process of ordering new machines, importing and installing them could take anywhere up to six weeks.
Banks have started placing orders but the timeline of delivery remains uncertain.
The country’s largest lender, State Bank of India, has placed an order for two lakh new PoS machines, said Rajnish Kumar, managing director at the bank. This (the directive) is being taken seriously by banks who are gearing up to order more PoS machines and acquire merchants, he added.
At present, India has about 15 lakh PoS terminals which accept card payments but the acceptance infrastructure falls short of the demand as there are about 73 crore debit and credit cards in the country, according to Reserve Bank of India data for August, 2016.
Those in the payment systems business say that it will take at least five-six weeks for vendors to manufacture and deliver these machines.
“The major manufacturers of these machines are Verifone and Ingenico. If one wants to import a bulk order of, say, two lakh machines, it will take at least three weeks to manufacture, three to ship and one more week to be cleared by customs,” said Chirantan Patel, director of Gujarat based Cursor Software Private Ltd. which sells PoS machines.
Patel added that there are some companies in India who are trying to manufacture PoS machines but added that their manufacturing capacity is small. Bulk orders will have to be serviced by foreign vendors who manufacture in China or Taiwan, said Patel.
BloombergQuint also spoke to a head of a merchant acquiring payment solutions company, who spoke on the condition of anonymity. There are no big manufacturers of PoS terminals in India which increases the lag time between ordering and actual deployment of the terminal, said this person. He added that suppliers will find it tough to deliver on such large bulk orders at short notice so one might have to look for alternatives, the person said.
SBI’s Kumar shared the same concerns and confirmed that the bank procures most of its machines from companies based in France and the U.S. These machines, however, are mostly manufactured in China and shipped from there, Kumar said.