India is among the nations having the lowest penetration of POS terminals in Asia Pacific region even as the country is regarded as the fifth largest retail market in the world.
According to an Ernst and Young report, India has only 693 POS machines per 10 lakh population. This is far less than the figures in emerging markets such as Brazil, which has about 33,000 POS terminals per million while Russia and China, has around 4000 Payment Terminals each per million people.
Though the country has around 700 million debit cards and 26 million credit cards, the number of POS terminals allotted to retail vedors is only 1.5 million.
After demonetization of higher order currencies followed by government’s move to make India a cash-less economy, Banks are finding it hard to meet the deadline of issuing 15 million POS machines to merchants by June 2017 even though the apex bank (RBI) intended to set up Acceptance Development Fund (ADF) to boost card payment infrastructure in the country.
Retailers, especially small and medium businesses, feel that the government should relax norms to allow private players to enter into payment handling processes and create a level playing field by maintaining uniform bank transaction charges across all bank cards.
Almost 90% of the debit cards in India are primarily being used for withdrawing money from ATMs and people are reluctant to use debit cards for shopping and paying utility bills as they don’t want to bear the bank transaction charges which range from 2-2.5 per cent.
There are a number of factors which are affecting the growth of POS terminals in India:
1. Only a few banks have the rights to issue POS terminals to merchants.
2. Merchant Discount Rate (MDR) charged by banks is too high
3. High cost of acquiring and maintaining POS machines.
4. Huge disparity in distribution of fee between accepting and issuing banks.
Few Banks control POS terminals
About 80% of existing POS terminals in India is controlled by banks such as ICICI Bank, State Bank of India, Axis Bank, HDFC Bank and Corporation Bank. Vendors who want to install POS machines have to submit their request along with necessary documents to the bank where they have the business account. Since India is not self-sufficient in meeting the needs of POS machines, these banks are getting POS machines from China, Taiwan or the US.
Higher Merchant Discount Rate (MDR)
One of the major reasons for skewed POS terminals in India is that retailers are being charged high Merchant Discount Rate by banks and there is no uniformity when it comes to inter-bank interchange fee for credit card and debit card transactions. The MDR is nothing but the fee charged by banks from merchants for each card transaction. Merchants in turn pass this amount to customers.
Following an outcry from stakeholders, the Reserve Bank of India has recently capped MDR for debit cards and fixed at 0.75 per cent and 1 per cent for transactions below and above Rs 2000, respectively. However, certain retailers are still charging up to 5 per cent from customers when the payment made through credit/debit cards.
Not all banks have card transaction business
No other banks expect the few mentioned above have the rights to develop card acceptance network. So, most of the regional, public and cooperative banks across the country do not have the wherewithal to develop card transaction business. They only issue debit cards to customers to be used to withdraw cash at ATMs or to pay through other bank-issued POS terminals.
Experts feel that the lack of level playing field between third party companies who develop POS solutions and banks is the major hindrance for the growth of POS terminals in India. RBI mandates that private players need to take permission from RBI-designated banks to process POS payments. Third party POS players such as PayU, PayNear, MSwipe, Ezetap and Oxigen are operating through one of the designated banks.
What needs to be done?
There should be an equitable distribution of the MDR among banks which will open up competition between smaller banks. The ADF should be used to bring more POS terminals into the country.
Secondly, third party POS players should be encouraged to introduce new POS payment technology. For example, Oxigen’s Super POS can also be used as a mini ATM and has Aadhaar and biometric authentication. Banks should work out a way to involve non-bank entities to create safe and secure cash less environment.
Paytm, which has currently half a million offline merchants, has an interesting way to encourage cashless payment. Each PayTm merchant has been allotted a QR code which their customers have to scan on the app in their smart phone while making a payment. This has cut installation and operational cost of a POS terminal.
Customers willing to move money to a bank account need to pay one per cent fee to Paytm which is far less than the MDR. Customers too are happy to pay through such payment system where they don’t have to pay more than the product or service cost.