PoS terminals and the future of digital payments

The offline unorganised segment will drive merchant payment digitisation with QR codes and sound boxes - devices with speakers that display alerts for merchants when transactions are processed

India has witnessed an over 300 per cent rise in the adoption of point-of-sale (PoS) terminals over the past five years; and as of FY22, more than 6 million such terminals had been installed. But their density is still low compared with other Brics nations, and the PoS acceptance infrastructure is concentrated in the Tier-I and Tier-II cities, owing to the low viability and high cost of deployment in villages. And UPI (Unified Payments Interface) — owing to its interoperable architecture — has supercharged the transition to non-cash payments, especially in P2P (person-to-person) fund transfers and the low-value P2M (person-to-merchant) payments. 
 

Thus, UPI saw a nine-fold transaction spurt in volumes to about 46 billion transactions in January this year, from 5 billion transactions three years ago; and accounting for more than 60 per cent of non-cash transaction volumes. The growth in the number of installed PoS machines, in comparison, has remained stagnant.
 

With the introduction of UPI on credit, physical PoS terminals are likely to see less traffic. The National Payments Corporation of India recently made it mandatory for RuPay credit cards to be linked to UPI by FY23. Most of the transactions made are under Rs 1 lakh in value, the space which is now being dominated by UPI; ticket-sizes above this are very few in number and cannot justify the heavy cost of PoS implementation.
 

The financial architecture is fast moving towards favouring asset-light, cost-effective innovations on PoS. QR codes, for example, are accepted by more than 30 million merchants, a 12-fold rise from a mere 2.5 million five years ago. With QR codes and soundboxes -- devices with built-in speakers that provide sound and display alerts for merchants when transactions are processed -- the offline unorganised segment will be the driving force behind merchant payment digitisation. 
 

Organised offline and online merchant payments, such as bill payments and recharges, will account for the remaining market share. To truly onboard the hesitant, under-penetrated merchant segments, fintech firms and banks must boost engagement through integrated PoS solutions, to reduce the dependence on cash and bring the under-banked into play.
 

The trend of easy-to-adopt, all-in-one, tailormade solutions is going to make soft-PoS the future of digital payments. Through this solution, which allows smartphones to possess the capabilities of a complex PoS machine, rural India can be included in the digitisation revolution in a larger way. The absence of hardware reduces expenses, and downtime repairs may make merchant acquisition quicker, less expensive, and more extensive. The soft-PoS allows both near-field communication and QR code-based payments, thus enabling contactless payments via both the UPI mode and cards.

The modern PoS terminal is likewise becoming more complex (unlike the earlier models, which only served payment needs), and can be upgraded to a “smart” terminal to accommodate a variety of merchant and company demands using API-based integrations. This includes both back- and front-end business needs, such as managing inventory, sales, and customers and orders. With cloud-based PoS terminals, more straightforward back-end software upgrades take the role of traditional technological hardware changes required for upgrades for new features or merchant requirements.
 

As a result of the recording of their transactional volumes, merchants will be considered to be in the category of “semi-organised retail”; and will have a digital footprint that alternative lenders can use to their advantage when extending credit. The inclusion of a range of businesses — from micro, small and medium enterprises to the smallest of kirana outlets — in the digital financial arena will spur growth at all levels.
 

With retailers giving their customers more power, digital transactions will soar and move India’s economy closer to the $5-trillion mark. We must prepare for the impending new use-cases that will rock the nation.

The writer is CEO, Mswipe Technologies