For long, it has been the forte of private sector banks, but now state-run lenders plan to join the party. Nudged by the government, public sector banks would now strengthen their presence in the point-of-sale, or PoS, channel, which would aid their earning fee income. PoS terminals are electronic checkout counters that can also be used to verify and process credit card transactions.
The government has decided to form a company in which top state-run banks, including State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank and Union Bank of India, along with National Payments Corporation of India (NPCI), would be stakeholders. This company would buy PoS terminals and deploy these on behalf of the lenders across merchant outlets in the country.
NPCI would also enable switching of domestic debit transactions at PoS terminals, currently carried out by Visa and Mastercard.
“Once implemented, this cost-saving structure would prove to be a game-changer for state-owned banks, in terms of technological presence,” said an industry expert familiar with the development.
According to industry estimates, there are about 600,000 PoS terminals in India, the majority of which are owned by private sector lenders like ICICI Bank and Axis Bank.
Under the present framework, the merchant pays 1.5-1.8 per cent of the sale value to the acquiring bank, or the bank that owns the PoS terminal. After keeping a margin of 40-50 basis points, the acquiring bank then pays the issuing bank, or the customer’s bank. Visa or Mastercard, which enable interbank switching of domestic debit transactions on PoS, also earn a part of the fee.
In the process, the acquiring bank not only enjoys fee income, but also strengthens the banking relationship with merchant establishments by encouraging more cash flow.
“So far, public sector banks have been laggards in this field. The new model would be helpful, as volumes drive costs down,” said a senior official of a consulting firm. The model is initially being worked out for debit cards.
Very few players, including banks and merchant establishments, currently dominate the market. “A small-time merchant feels discouraged to accept cards if he needs to pay two per cent to the bank,” said the consultant.
According to data from the Reserve Bank of India, debit cards have increasingly become popular since the past two financial years. In November, the number of outstanding debit cards rose to 260 million, while the amount transacted through these cards at PoS terminals was Rs 4,300 crore.
