The steep cuts in data processing charges by leading card network Visa recently will have little impact in improving card acceptance in India as the economy is mainly cash dependent, said industry executives. Visa cut its fee per transaction by up to 95 per cent for transactions below Rs 2,000 and the company also reduced its charges for higher-value payments to Rs 1.5 from Rs 2.99 per transaction.
Usually, these charges along with banks’ fee as issuers and merchant acquirers are borne by the merchants. The company hopes that the rate cut will drive greater digital adoption, both for consumers and merchants.
“Over the last 18 months, debit card has rapidly evolved from being a mere ATM cash withdrawal tool to a powerful digital payment means for Indian consumers across segments. This further reinforces our belief that the established base of over 800 million debit cards across India will be pivotal in the country’s efforts to go digital, said a spokesperson from Visa.
However, this cut may not prove enough to drive digital transactions in the country even though a major chunk of transactions are below Rs 2,000.
Merchant discount rate (MDR), which is the cost of a transaction, is structured in a way so that it is largely shared between the card issuing bank and merchant acquiring bank with payment processors and aggregators taking a very small share of what’s left, experts said.
Currently, the MDR is capped at 0.4 per cent for transactions up to Rs 2,000 and at 0.9 per cent for transactions above that amount for debit cards.
However, post-demonetisation, the government sought to ramp up digital transactions and introduced subvention scheme for merchants for small transactions. Under this scheme, merchants don’t pay anything for accepting payments of up to Rs 2,000 through debit or credit cards. The fee of 0.4 per cent applicable on such transactions is borne by banks which are in turn subsidised by the government.
Thus, it’s only the banks for which the cuts will be beneficial as their cost of operations will come down, experts said. However, even there, the impact won’t be much because major networks such as Mastercard and Visa take away only a small portion of their costs. Payment industry players also told Business Standard that this is not a one-way revision as card networks review their costs every quarter and structures shift on each review.
“This is not going to change anybody’s life except make it a little cheaper for banks to process digital transactions,” said Jitendra Gupta, MD, PayU. “These networks change their fee every quarter so there’s nothing new about Visa revising fee and already the government is subsidising the category where the biggest cut has been made.
So, it’s not likely to improve card acceptance in the country.”
India is hugely under-penetrated when it comes to usage of plastic money. There were 1.8 million point-of-sale machines in India which have now gone up to 3 million, according to Reserve Bank of India (RBI) data.
However, credit cards still account for 51 per cent of the transactions in the country even as 96 per cent of plastic cards issued are debit cards. Meanwhile, this could also be a move by the company to counter RuPay’s increasing dominance which is now being issued by 1,000 banks across the country. RuPay is looking to close the gap with MasterCard and Visa in terms of volume and value of transactions, said Naveen Surya, chairman, Payments Council of India.
“This is a regular market-driven revision. All payment networks review their commercials from time to time,” Surya said. RuPay transactions increased to Rs 654 billion through 667 million transactions recorded on PoS machines as well as e-commerce, according to NPCI data.
NPCI hopes to pip Mastercard or Visa both of which have similar market shares of about 30-40 percent each and become the second largest player in the debit cards market by the end of this financial year. A card company executive said on condition of anonymity that charges have been made lowest in only that category which the government is subsidising.
“We are not going to make any changes on our structures just because Visa has cut its rate. It is important to note that it also hiked service fee from 0.035 per cent to 0.055 per cent which is likely to make up for their lost revenues in high volume transactions where there is no government subsidy.”
Mastercard didn’t respond to queries sent by Business Standard till the time of publishing.