The volume of debit card transactions at point of sale (POS) terminals bounced back to demonetisation levels in April this year, shows data released by the Reserve Bank of India (RBI) in its monthly bulletin for June 2018.
The aggregate volume of debit card transactions at POS terminals for April stood at 333.77 million, a little over the January 2017 volume of 328.62 million. The value of transactions in April – Rs 45,457 crore – remained significantly lower than the January 2017 aggregate of Rs 49,004 crore.
The latest figures on debit card usage mark a recovery over the first few months of 2018, when a number of factors converged to give rise to a major cash crunch in parts of India. One of these was the scaling back of POS networks by some banks and a resultant spurt in cash-based transactions. On April 19, FE had reported that the size of the POS networks of 15 scheduled commercial banks shrunk between 0.4% to 33% in the December 2017 to February 2018 period.
Barring January, all other months in 2017 had clocked debit card-based POS transactions in the range of 250-300 million as the compulsion to use digital means of payment wore off with the restoration of normal cash supply.
Cards have traditionally dominated digital transactions in India. Even as Unified Payments Interface (UPI) saw a steep growth in usage in FY18 – volumes rose 25 times between April 2017 and March 2018 to over 178 million – most transactions on this channel are peer-to-peer (p2P) payments. Peer to merchant (P2M) transactions continue to be dominated by cards.
Experts say that part of the reason for this was the differential regime for merchant discount rate (MDR), which skewed the market in favour of cards. In a note published in February, Credit Suisse said, “We believe the slower pick-up in UPI is partly because of the unfavourable economics for banks on UPI vs POS. Till recently, the fees earned on UPI transactions were lower than debit card MDRs—making UPI relatively unattractive for banks.” MDR is the fee paid by a merchant to the bank that offers it the infrastructure to accept digital payments.
Typically, MDR on debit card transactions were pegged at 75-100 basis points (bps), as against a 25-65 bps range for UPI transactions. The RBI has now mandated a drop in MDR and for small merchants, with debit card fees being capped at 40 bps for them and at 90 bps for larger merchants.