PoS transformation in progress, but business model needs a rethink

Two years ago, Worldline (India) — the Indian arm of the French payments firm — launched VABOX (Voice Alert Box): Merchants would get instant audio alerts on settlement of UPI (Unified Payments Interface) payments via QR codes in the language of their choice when customers checked out. It took the point-of-sale (PoS) device ecosystem nearly two decades to reach 10 million in deployments, whereas UPI sound boxes are at 12-14 million installations already. 

“This growth trajectory is expected to continue, with sound boxes projected to reach 40 million over the next five years. We have recognised the shift. The focus is on sound boxes and we have three lakh [300,000] devices. Our goal is to scale this to a million over the next two years,” says Ketan Patel, cofounder and chief executive officer (CEO) of Mswipe, one of the largest non-bank deployers in the country. The big change underway, as Ramakrishnan Ramamurthy, chief delivery and operations officer at Worldline (India), views it, is the sound box driving the next set of innovations: value-adds, embedded payments, check-out experience, in-system integrations, and comprehensive reconciliation. “The transition from card-present to card-not-present, and customer-present to customer-not-present can also be enabled through embedded solutions like link-pay,” he says. 

On the ground 

What does deploying sound boxes lead to? It eliminates the need for merchants to check their phones for verification. For fast-moving and high-footfall shops, it enables merchants to manage multiple transactions at once, reducing delays and disputes.  The real-time confirmation builds efficiency and trust, keeping operations smooth and allowing the merchant to focus on business. This has been helpful for barbers, grocers, food stalls, salons, and pharmacies, where high activity and limited staff can make manual payment verification impractical. 

The dynamics of in-store payments are being hewed again; this has implications for fortunes in retailing. Boston Consulting Group estimates the sector will be at $1 trillion by 2027. Merchant on-boarding will be of singular importance in this journey. For what needs to be pencilled is the skew: We have far more pieces of plastic to swipe with — 982 million debit and 108 million credit cards in January 2025 — relative to the places to swipe at. This is because the number of PoS terminals, the swipes on them, the kind of cards used, the volumes and value of transactions, at malls like Palladium in Mumbai or DLF Emporio in New Delhi, far outstrip the same at millions of smaller outlets. 

 

Blame this p­­oor run-rate on the one-time hardware cost of around ₹10,000 plus monthly charges at ₹300 or so, to onboard merchants. Now, link this with the fact that there’s nothing you incur by way of investments to do so via QRs and merchant apps. In March, UPI had 19.78 billion transactions (up 14 per cent over February) with a value of ₹24.77 trillion (up 13 per cent). Here again, Mintoak — a merchant software as a service platform that enables banks to engage with merchant payments and commerce apps — is taking the fight to PhonePe and Paytm. The four catalysts to where we are at: Reliance Jio, which crashed data pricing (smartphones existed earlier but data got democratised); the government’s move to knock off the merchant discount rate (MDR) on transactions up to ₹2,000 on the Rupay platform (it’s another matter that this affected PoS deployers); cashbacks on UPI (think Paytm, Amazon Pay, Google Pay, PhonePe or a Cred); and the big boost to digital payments after the coronavirus pandemic. 

But what do sound boxes mean for legacy PoS devices? As Sumit Chopra, chief operating officer at Pine Labs, views it, there can never be a one-size-fits-all approach. Pine Labs Mini offers the dual functionality of a QR sound box and card payment acceptance from a single device. Its touchscreen devices have software enhancements to help merchants upsell products through in-built equated monthly installment integrations, run loyalty programmes, leverage utility applications, and address other operational requirements. An interesting aspect is the use of biometrics for authentication purposes for disbursal of loans by shadow banks. “The possibilities are endless and PoS terminals will continue to find newer and interesting use cases,” says Chopra. 

 

Sticking point 

The move in the Union Budget of July 2019 to go in for zero MDR on RuPay debit-cards-UPI on transactions of up to ₹2,000; and the issue of free UPI transactions, continue to be in the spotlight. 

The MDR is a percentage of the transaction size which is shared by the card-issuing bank, the network — be it Visa, MasterCard or RuPay — and the acquiring entities — be it banks, or non-banks like Mswipe Technologies or Paytm. In the case of Rupay UPI-debit cards, without MDR income, the business of PoS providers and payment service providers is under pressure. While the government has proposed that the Reserve Bank of India and banks absorb the lack of MDR inflow (even as there are several ways for banks to recover such costs), there is no way for PoS deployers to recoup it. Again, neither the Nandan Nilekani report (2019) nor the Ratan Watal Committee (2016) made a case for zero-MDR, but said it should be determined by market forces. 

The industry has all along taken the stance that it would be better to give an MDR exemption on RuPay UPI-debit cards to all merchants with turnovers of up to ₹20 lakh rather than on ticket-sizes of up to ₹2,000 at all outlets. They believe that this will give relief to smaller merchants, but at larger outlets, the MDR should hold even if it is up to ₹2,000. As matters stand, the “positive discrimination” sought to be achieved in the first place is getting distorted because the government picks up the tab for the larger merchants who can afford to absorb the MDR. There is growing stress on the payments infrastructure and a sustainable model is the need of the hour. 

“A calibrated approach where MDR is applied to medium and large merchants with a certain threshold can strike the right balance. Many of these merchants already have an outgoing MDR and are better positioned to absorb the cost,” points out Raman Khanduja, cofounder and CEO, Mintoak. 

It is a mixed message from the shop floor.