Pvt Banks Rush To Buy Edc Merchants

Merchant acquisition business is emerging as the newest mantra on the Indian finance street. The new private banks are aggressively pushing for this business challenging the monopoly of some of the foreign banks. These banks, led by HDFC Bank, are setting up electronic data capture (EDC) terminals across the country.

The total number of EDC terminals in the country are estimated to be around 45,000 with both HDFC Bank and Citibank now running neck-to-neck with 10,000 terminals each. HDFC Bank has set up these terminals over the last one year.

Through the EDC terminals -- where credit cards are swiped -- banks get into the merchant acquisition business. Merchants (who accept credit cards while selling goods) pay around 2.5 per cent of the sales to the banks involved in the transactions. The acquiring banks -- banks on whose terminals the cards are swiped and with whom the merchants tie-up for payments -- get around 0.8 per cent while the issuing banks get around 1.1 per cent with the remaining going to the franchises (Visa, MasterCard or Amrerican Express). The EDC terminals can accept both debit and credit cards.

Uma R Krishnan, country head retail branch banking and credit cards, HDFC Bank, says, "All the terminals are fully owned by the bank. We are currently at 65 locations across the country. Mumbai, Delhi, Hyderabad, Chennai and Bangalore account for around 65 per cent of the market."

Atul Malik, business manager-cards, Citibank, says, "The bank has set up 10,000 terminals across 28-29 cities. It's a very competitive market with around 40 per cent of the incremental acquisition coming in from the second-tier cities. The banks will have to maintain a strict vigil on the operational efficiency. The scale has to be expanded to break even in this market."

Venture Infotek, the largest non-bank private player in the market, has set up around 22,000 EDC terminals on behalf of other banks in 368 cities and towns across the country. Girish Rangan, managing director, Venture Infotek, says that his company is the only third-party transaction management infrastructure provider in the country providing end-to-end solutions to many banks and non-banking organisations. "Due to the shared e-infrastructure provided by us, our customers are able to save huge costs and focus on their primary businesses," he points out.

ICICI Bank has also entered into the market and is in the process of setting up 350 EDC terminals.

The entry of new players in the merchant acquisition business, has triggered a price war. For high-value transactions, acquiring banks have started undercutting the commission from 0.80 per cent of the card spends to 0.20 per cent. Banks are banking on high volumes from these merchants in order to retain their profits.

Roopam Asthana, manager cards, HSBC, says, "Competition is on the rise even in the second rung cities but it is unfortunate that competition is restricted mainly to price and not on other aspects such as service, merchant education and cardholder education for card usage. In the merchant acquisition business, margins are under tremendous pressure on account of undercutting by newer entrants and this is affecting activities such as service and merchant education which are absolutely essential for smooth growth of this industry."

Most of the EDC terminals put in the initial years were at high-spend points such as five-star hotels and departmental stores. "We are looking at increasing the acceptance level of cards at small retailer shops, general purpose merchants, hospitals, etc. In these places, the debit card will also be used by the customers," says HDFC Bank's Krishnan.

HDFC Bank has a debit card base of over 8.75 lakh. It has recently started issuing credit cards. UTI Bank plans to issue five lakh debit cards in the current fiscal and has already issued 50,000 in the first month of its launch. "The new private sector banks are seeding the market with debit cards. Once customers start using these cards and get comfortable they will gradually upgrade themselves to credit cards," says Hemant Kaul, senior vice-president, UTI Bank.