The monthly value of debit and credit card transactions at point of sale (PoS) terminals inched closer to Rs 1 lakh crore in May, showed data released by the Reserve Bank of India (RBI) in its monthly bulletin for July 2018. Card transactions worth Rs 93,860 crore were recorded during May at PoS terminals, while the volume of such transactions during the month was 466 million. If card-based payments at PoS terminals cross the Rs 1 lakh crore-mark, it will be a significant milestone for digital transactions at physical stores and other merchant outlets. Though debit and credit cards are also used while making online payments to e-commerce platforms, RBI does not release data on that channel of card-based payments.
FE had reported last month that the volume of debit card transactions at PoS terminals bounced back to demonetisation levels in April this year, according to RBI data. The April figure on debit card usage marked 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.
Cards have been the primary mode of merchant payments over the years in India, but the introduction of mobile wallets, Unified Payments Interface (UPI) and Aadhaar-enabled Payment System (AePS) in the last few years have offered other options to consumers for making digital payments.
Mobile wallets clocked 326 million transactions worth Rs 14,239 crore in May; UPI’s tally for the month was 189.5 million transactions worth Rs33,288.51 crore. Transactions made through wallets and UPI include both peer-to-peer (P2P) and peer-to-merchant (P2M) transfers, and are therefore, not strictly comparable to card payments at PoS terminals. AePS is yet to evolve as a widely-used means of making financial transactions as banks and other players in the payment ecosystem continue to debate nitty-gritties, such as the interchange on such transactions.
Experts say that part of the reason for banks favouring cards over other payment channels 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.