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Modi govt's card payment push may cause annual loss of Rs 3,800 cr to banks

After note ban, govt pushed banks into deploying millions of points-of-sale machines to encourage online payments

Press Trust of India  |  Mumbai 

debit, credit, card, swipe,

The government's payments push, mainly online card payments through PoS machines, may leave already capital starved bleed by a whopping Rs 3,800 crore annually, warns a report.

After the note-ban last November, the has pushed into deploying millions of points-of-sale (PoS) machines to encourage online payments. Since then, have more than doubled their PoS terminals. The number of PoS terminals post-has increased from 13.8 lakh in March 2016 to 28.4 lakh as of July 2017. On an average banks are installing 5,000 PoS per day.

This has resulted in increase in debit plus credit cards transactions at PoS from Rs 51,900 crore in October 2016 to Rs 68,500 crore in July 2017, with peak reaching in December 2016 to Rs 89,200 crore.

"We estimate that for OFF-US transactions, the aggregate annual loss for card transactions at PoS terminals around is Rs 4,700 crore. However, the net gain per annum from ON-US transactions at PoS would be around Rs 900 crore only.

"Therefore, the total annual loss to the banking industry is around Rs 3,800 crore," SBI Research said in a report today.

The payment card industry is based on a four-party model - the issuing bank, acquiring bank, merchant and the customer.

The transactions at PoS are termed as ON-US transactions if the issuing bank and acquiring bank are the same bank. If the issuing bank and acquiring bank are different entities, then it is known as OFF-US transactions.

The acquiring bank bears the entire cost to create the infrastructure for PoS terminals, clearing and settlement, merchant training, terminal maintenance, and supply of consumables among

The issuing bank involves the cost of issuing the cards and also manages other risks relate to card holders like failed transactions and frauds.

Acquiring bank receives revenues only in the form of MDR (merchant discount rate) and monthly rental. The MDR on debit cards has been at 1 per cent, while there is no fixed MDR on transactions.

"The overall loss of around Rs 3,800 crore per year is quite substantial and hence the sustainability of the card business depends on a number of factors like, MDR, low card usage, poor telecom infrastructure, lack of incentives to merchants to accept cards and insufficient awareness about the costs associated with use of cash," the report said.

A better is needed to drive the payments agenda successfully, it said, adding this can be achieved by ensuring dedicated spectrum for financial transactions alone, as there is insufficient quantum of spectrum for the infrastructure to take the additional load.

The report said the current humongous PoS infrastructure that banks have developed have to be supported wholeheartedly.

"Though has proposed various measures to incentivize PoS infrastructure and banks are installing PoS terminals, in the long-run, the business would be viable, only if the transactions at PoS surpass ATM transactions, an enviable task indeed," the report concluded.

First Published: Thu, September 28 2017. 19:26 IST