Industry Survey 2009

8/8/2019 Industry Survey 2009

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INDUSTRY SURVEY

PAYMENT CARD INDUSTRY 2009

Research


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Contents Page No.

Foreword _____________________________02

1. Credit Cards __________________________03

2. Debit Cards___________________________12

3. ATMs _______________________________ 17

4. Merchant POS Terminals _______________ 20

5. Key Trends __________________________ 23

COPYRIGHT INFORMATION:All information contained in this report is the property of Venture Infotek Global Private Limited. Reproduction ofinformation, tables, charts etc is permitted subject to the condition that the source is acknowledged as follows:Source: Venture Infotek Research

Additional copies:This report can be viewed on our website:www.ventureinfotek.com/IndustrySurvey.htmAdditional copies of this report can be requested by sending an email to [email protected]

The data presented is based on feedback from relevant people in various banks. It has not been validated withactual records. Wherever published information was available it has been used. The views expressed by thebankers might be their own and may be coinciding with that of the Bank. The analysis done is purely on the datacollected and the views expressed thereof are on the basis of the analysis. In certain cases, where data was notforthcoming, best effort estimates have been used.
http://www.ventureinfotek.com/IndustrySurvey.htmhttp://www.ventureinfotek.com/IndustrySurvey.htmhttp://www.ventureinfotek.com/IndustrySurvey.htmmailto:[email protected]:[email protected]:[email protected]://www.ventureinfotek.com/IndustrySurvey.htm


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It is indeed a privilege to present the Annual Payment Card Industry Survey 2009. At theoutset, we are grateful to all the industry players who have provided us with their valuabletime and information towards completion of this survey.

The year 2008-09 had been an exceptionally challenging year for the global economy andfinancial sector. India, while fundamentally in a much stronger position, has also experiencedthe impact of these events in many sectors. However, the Indian payment card marketseems to be unaffected much from the global financial crisis. The number of credit cards anddebit cards together were 1,621 lakh as on March 2009 with an increase of over 321 lakhcards in the year, registering a growth rate of 25% in the financial year 2008-09. But, thenumber of credit cards in India during the year ended March 2009 declined to 246.99 lakhfrom the previous year card base of 275.47 lakh. The debit card base increased from 1,024

lakh in March 2008 to 1,374 lakh by March 2009.

The card acceptance infrastructure has been growing at positive pace, registering amerchant terminal base of about 4.27 lakh.

As always, we would like to thank all those who have forwarded us their valuablesuggestions, comments and feedback on the surveys conducted till date. We assure you thatwe will continue our concentrated efforts and strive to maintain the high quality of our surveyyear on year.

About us:Venture Infotek (www.ventureinfotek.com ) is Indias only consumer payment processing

company, providing integrated end to end card payment processing solutions for both issuingand acquiring banks.

Venture Infotek has set up a countrywide infrastructure for electronic payment processingwith its hub in Mumbai catering to over 600 cities and towns.

We have built the Indian card processing industry and today command an impressive shareof the market. Since 1997, Venture Infotek has successfully devoted its founding years inbuilding this massive and largely scalable infrastructure for enabling electronic payments inthe country.

We would like to thank Mr. P. Ravindra, General Manager and Ms. Ankita Vaishnav,

Management Trainee at Venture Infotek for their invaluable efforts in producing this report.

We look forward to your suggestions and feedback. Please mail your suggestions [email protected]

Regards

Piyush KhaitanManaging DirectorVenture Infotek Global Pvt. Ltd.
http://www.ventureinfotek.com/http://www.ventureinfotek.com/mailto:[email protected]:[email protected]:[email protected]://www.ventureinfotek.com/


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Segment Performance

The credit card issuers have been facing a crunch in their business, as the number ofcredit card base in India during the year ended March 2009 declined to 246.99 lakh fromthe previous year card base of 275.47 lakh, registering a negative growth rate of 10.34%.With the increasing delinquency rate in the country, banks and card issuers are likely toremain hesitant in issuing new credit cards. Many banks have been closing inactive andunproductive accounts from their credit card portfolio. It is estimated that credit carddatabase may further fall in the year 2009-10 to about 226 lakh cards.

Chart 1: Credit Cards Issued(No. of cards in lakh).

Growth in Credit Cards Issued

48.65 60.6876.08

100.65141.05

173.27

231.23

275.47246.99

226.64

0

50

100

150

200

250

300

31.0

3.0

1

31.0

3.0

2

31.0

3.0

3

31.0

3.0

4

31.0

3.0

5

31.0

3.0

6

31.0

3.0

7

31.0

3.0

8

31.0

3.0

9

31.0

3.1

0

(Est.)

Year

Nos.ofCreditCards

(inlakh)

Market Share

ICICI Bank, HDFC Bank, HSBC Bank, SBI and Citibank have over 80 percent share of the

Indian credit card industry. ICICI Bank has the largest credit card base in the country with 70lakh credit cards in the market as on March 2009. But, its market share declined to 28% fromthe last year market share of 33 % as its cards in circulation dipped from 90 lakh a year agoto 70 lakh. HDFC and HSBC Bank follow ICICI Bank with market share of 16 % and 14 %respectively. Next is the SBI with Market Share of 11 % showing decline in the credit cardbase when compared to last year figure.
http://www.rupeetimes.com/compare/credit_cards/http://www.rupeetimes.com/compare/credit_cards/


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.

Chart 2: Comparative Market Share of Individual Players.

Market Share as on 31st March 2009

14%11%

10%

5%5%

5%2%

2%28%

16%

ICICI HDFC HSBC

SBI Citibank ABN Amro

Standard Chartered Barclay's Bank Axis Bank

Others

Market Share as on March 2008

33%

13%13%

12%

10%

5%5%

9%

ICICI SBI HDFC

Citibank HSBC ABN Amro

Standard Chartered Others


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Table 1: Market Share of Individual Players(Number of Credit Cards in Lakh)

Sr. No. Banks March-08 March-09 March- 10(Estimated)

Rank No. ofCards

Rank No. ofCards

Rank No. ofCards

1 ICICI 1 90.00 1 70.00 1 55.00

2 HDFC 3 35.00 2 40.30 2 41.00

3 HSBC 5 27.00 3 35.00 3 40.00

4 SBI 2 36.00 4 27.00 4 25.00

5 Citibank 4 34.00 5 25.00 5 18.006 ABN Amro 6 15.00 6 13.05 7 10.00

7 Standard Chartered 7 14.00 7 13.00 6 11.00

8 Barclay's Bank 8 5.00 8 6.00 8 7.50

9 Axis Bank 9 4.52 9 5.43 9 7.00

10 Canara Bank 15 0.76 10 2.00 10 3.00

11 Andhra Bank 12 1.49 11 1.63 11 1.60

12 Bank of India 11 1.55 12 1.55 12 1.50

13 Kotak Mahindra Bank 13 1.25 13 1.00 15 0.75

14 Vijaya Bank 14 0.82 14 0.83 14 0.80

15 Bank of Maharashtra 16 0.71 15 0.72 13 0.90

16 Syndicate Bank 17 0.58 16 0.64 16 0.70

17 BOB Cards 10 2.50 17 0.60 17 0.60

18 Central Bank of India 18 0.50 18 0.50 18 0.50

19 J&K 20 0.18 19 0.24 19 0.30

20 Corporation Bank 20 0.18 20 0.23 20 0.29

21 Union Bank of India 19 0.25 21 0.14 21 0.20

22 Others 4.18 2.13 1.00

Total 275.47 246.99 226.64


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Sector Wise Market Share of the Banks:

The market share of private banks has fallen to 47% in 2009 from 48% of last financial year.The private banks have shown a decrease in their credit card base from 130.77 lakhs cardsin the previous year to 116.73 lakhs cards by March 2009. The market share of foreign banksincreased from 34% in 2008 to 37% in 2009. Public sector banks constitute 15 % marketshare, with 36.08 lakh credit cards. Other banks having card base of 2.13 lakh cover thebalance 1 % of market share.

Chart 3: Analysis in terms of Public Sector, Private and Foreign Banks


15%

47%

37%

1%

Public Sector Private Banks Foreign Banks Other


16%

48%

34%

2%

Public Sector Private Banks Foreign Banks Other


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Table 2: Analysis in terms of Public Sector, Private and Foreign Banks(No. of Cards in Lakh)

Banks March - 08 March - 09 March - 10(Estimated)

No. of Cards No. of Cards No. of Cards

Public Sector Banks

SBI 36.00 27.00 25.00

Canara Bank 0.76 2.00 3.00

Andhra Bank 1.49 1.63 1.60

Bank of India 1.55 1.55 1.50

Vijaya Bank 0.82 0.83 0.80

Bank of Maharashtra 0.71 0.72 0.90

Syndicate Bank 0.58 0.64 0.70

BOB Cards 2.50 0.60 0.60

Central Bank of India 0.50 0.50 0.50

J&K 0.18 0.24 0.30

Corporation Bank 0.18 0.23 0.29

Union Bank of India 0.25 0.14 0.20

Total 45.58 36.08 35.39

Private Banks

ICICI 90.00 70.00 55.00

HDFC 35.00 40.30 41.00

Axis Bank 4.52 5.43 7.00

Kotak Mahindra Bank 1.25 1.00 0.75

Total 130.77 116.73 103.75

Foreign Banks

HSBC 27.00 35.00 40.00

Citibank 34.00 25.00 18.00

ABN Amro 15.00 13.05 10.00

Standard Chartered 14.00 13.00 11.00

Barclay's Bank 5.00 6.00 7.50Total 95.00 92.05 86.50

Others

Others 4.12 2.13 1.00

Total 4.12 2.13 1.00

Grand Total 275.47 246.99 226.64


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Industry Spend

Despite of decrease in the credit card base, the credit card spends increased during the year

2009 as more and more Indians are using credit cards for purchasing essentials as well as

luxurious goods. Another driver for the growth in credit card spends is the growth of e-

commerce and transactions via the Internet. Travel services such as airline and railway

tickets are the primary drivers in this segment. A majority of credit card purchases come from

shopping, jewellery, dining and traveling, which contribute nearly 70% of credit card

payments.

The credit card spends at merchant POS terminals increased by 13% to Rs. 65,356 crore

during the year 2008-09. However, the growth was lower than the 40% recorded in 2007-08.

Chart 4: Growth in the Value of Credit Card Transactions(Value Rs. in Crore)

Growth in the Value of Credit Card Transactions

25,686

41,361

57,985

65,356

33,886

0

10000

20000

30000

40000

50000

60000

70000

2004-05 2005-06 2006-07 2007-08 2008-09Year

ValueofTransac

tions

(Rs.inCr)

(Source: RBI Bulletin)


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Chart 5: Market Share in Credit Card Spends.

Share in Spends as on 31st March 2009

16%

14%

11%

10%

5%5%

10%28%

ICICI HDFC HSBC

SBI Citibank ABN Amro

Standard Chartered Others

Share in Spends as on 31 st March 2008

34%

13%13%

12%

10%

6% 5% 7%

ICICI SBI HDFCCitibank HSBC ABN AmroStandard Chartered Others


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Table 3: Industry Credit Card Spend at the POS Terminals(Amount Rs. in Crore)

Sr.No.

Banks Mar-08 Mar-09 Mar-10(Estimated)

Rank Amount Rank Amount Rank Amount

1 ICICI 1 19,944.44 1 18,522.64 1 14,100.00

2 HDFC 3 7,467.28 2 10,663.75 2 10,500.00

3 HSBC 5 5,683.33 3 9,261.32 3 10,250.00

4 SBI 2 7,577.78 4 7,144.45 4 6,400.00

5 Citibank 4 7,156.79 5 6,615.23 5 4,600.00

6 ABN Amro 6 3,247.41 6 3,453.15 7 2,550.00

7 Standard Chartered 7 2,946.91 7 3,439.92 6 2,810.00

8 Barclay's Bank 8 1,052.47 8 1,500.00 9 1,500.00

9 Axis Bank 9 955.00 9 1,371.00 8 1,800.00

10 Vijaya Bank 10 415.79 10 474.24 11 480.00

11 Andhra Bank 14 135.68 11 344.51 12 400.00

12 Bank of India 11 317.91 12 327.74 13 380.00

13 Kotak Mahindra Bank 12 263.12 13 264.61 15 190.00

14 Canara Bank 20 30.00 14 225.67 10 760.00

15 Bank of Maharashtra 18 40.00 15 190.52 14 230.00

16 BOB Cards 13 200.00 16 158.77 16 155.00

17 Central Bank of India 15 105.25 17 132.30 17 125.0018 Syndicate Bank 16 80.00 18 96.73 18 100.00

19 Corporation Bank 19 38.00 19 77.12 19 80.00

20 Union Bank of India 17 49.77 20 68.44 20 55.00

21 J&K 21 22.00 21 28.00 21 40.00

22 Others 255.80 995.71 941.00

Total 57,984.73 65,355.80 58,446.00


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Average Annual Credit Card SpendThe average annual credit card spend has increased significantly to Rs. 26,461 during theyear 2009 from Rs. 21,049 during the year 2008 reporting a growth rate of 26% which ishigher than the 18% recorded in the year 2007-08.

Chart 6: Growth in Average Credit Card Spend(in Rs.)

Growth in the Average Credit Card Spend

16,57219,557 17,888

21,049

26,461

0

5000

10000

15000

20000

25000

30000

2004-05 2005-06 2006-07 2007-08 2008-09

Year

AverageIndustrySpend

(InRs.)


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Segment Performance

India has seen remarkable growth in its debit card market over the past few years. Thenumber of debit cards issued by banks grew by 34% in financial year 2009, compared to thefall of over 10% for credit cards in the year. This surge in debit card usage can be attributedto the ongoing economic slowdown and the cautious attitude towards spending money.

There are more than 1,374 lakh debit cards issued in the market. The debit card market isestimated to grow at 26 % with over 1,732 lakh debit cards in the country by March 2010.

Chart 7: Growth in the Debit Cards Issued(No. of Cards in Lakh).

Market Share

SBI has emerged as a leader in issuing debit cards with 30 % of market share during theyear 2009. ICICI Bank is the 2nd largest debit card issuer in the country with 10% marketshare in the year 2009. AXIS Banks ranks 3 rd with a market share of 9% in the year 2009.


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Table 4: Debit Card Market Share of Individual Players (No. of Cards in Lakh)

Sr.No.

Banks Mar-08 Mar-09 Mar-10(Estimated)

Rank No. ofCards

Rank No. ofCards

Rank No. ofCards

1 State Bank of India 1 298.50 1 406.00 1 515.002 ICICI Bank 2 133.00 2 140.00 2 150.003 AXIS Bank 3 86.70 3 117.00 3 147.004 HDFC Bank 4 57.00 4 90.00 4 123.005 Punjab National Bank 5 46.68 5 67.00 5 87.006 Canara Bank 6 32.90 6 57.50 6 82.007 Andhra Bank 10 22.54 7 40.78 7 55.008 Bank of Baroda 7 30.00 8 35.00 9 41.00

9 Corporation Bank 8 25.00 9 32.00 11 39.0010 Bank of India 9 23.00 9 32.00 10 40.0011 Syndicate Bank 11 22.10 10 30.16 12 38.0012 Union Bank of India 12 15.00 11 29.00 8 43.0013 OBC 15 8.00 12 13.72 13 19.0014 Karur Vysya Bank Ltd. 13 10.16 13 13.12 15 16.1215 Standard Chartered Bank 14 9.00 14 13.00 14 17.0016 Bank of Maharashtra 17 5.22 15 8.16 17 11.0017 South Indian Bank 21 4.10 16 8.00 16 12.0018 Kotak Mahindra Bank 16 5.38 17 7.23 20 9.0019 Dena Bank 18 5.20 18 7.16 19 10.0020 Vijaya Bank 23 3.96 19 7.06 18 10.12

21 ABN Amro Bank 19 5.00 20 6.60 22 8.0022 Development Credit Bank 20 4.57 21 6.31 21 8.5023 IDBI 24 3.22 22 6.08 20 9.0024 Jammu & Kashmir Bank 22 4.00 23 5.80 23 7.5025 UCO Bank 26 2.26 24 5.32 22 8.0026 Citi Bank 21 4.10 25 5.00 24 6.0027 HSBC 22 4.00 25 5.00 24 6.0028 Bank of Rajasthan 25 2.35 26 2.75 25 3.1529 Yes Bank 27 0.65 27 0.95 26 1.7530 Barclays Bank 28 0.31 28 0.79 27 1.2031 Others 150.47 175.82 209.41

Total 1,024.37 1,374.31 1,732.75


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Chart 8: Comparative Market Share of Individual Players:


10%9%7%5%

30%31%

3%

3% 4%

SBI ICICI AXIS

HDFC PNB Canara Bank

Andhra Bank BOB Others


29%

13%

31%

3%2%

5%

3%

6% 8%

SBI ICICI AXIS

HDFC PNB Canara Bank

Andhra Bank BOB Others


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Industry Spend

The debit card spends at merchant POS terminals increased significantly by 48% to Rs.

18,547 crore during the year 2009 from Rs.12,521 crore during the previous financial year.

There is considerable rise in spends through debit cards. This shows that consumer is

exhibiting credit averse behaviour. Also, the Indian consumer prefers to pay by cash and

debit cards seves as a substitute for cash which discourages dependency on credit cards.

Besides, benefits like reward points and discounts by merchants as well as bankers are also

being extended to debit card usage to encourage customers to shop by their debit cards.

Chart 9: Growth in the Value of Debit Card Transactions (Value Rs. In Crore)



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Average Annual Debit Card Spend

In the financial year 2008-09, the average annual debit card spend at merchant POSterminals increased by 10% to Rs. 1,350 from Rs. 1,222 in the year 2007-08 which is lowwhen compared to the 12 per cent growth rate of previous year. Also the average spend ondebit card is much lower than the average spend on credit card.

A study by Edgar, Dunn & Company (EDC) and India Cards Council (ICC) has revealed thatunlike in UK and Australia where 90% cards are active, there are only 56% active debit cardsin India.

Chart 10: Growth in the Average Debit Card Spend(in Rs.)

Growth in the Average Debit Card Spend

1,1851,090

1,2221,350

0

200

400600

800

1000

1200

1400

1600

2005-06 2006-07 2007-08 2008-09

Year

Avg.IndustrySpend(inRs.).

.


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Segment Performance

India got its first Automated Teller Machines (ATMs) when the Hongkong and ShanghaiBanking Corporation introduced the ATM concept in India way back in 1987. Now, thespread of ATMs has increased from 34,789 in March 2008 to 43,651 in March 2009 reportinga growth rate of 25%. The ATMs are estimated to grow by 35% during the year 2009-10,where SBI is planning to increase their ATM outlets by around 75%. As per the RBI release,the volume of ATM transactions has increased from 17,797 lakh aggregating to Rs.4,38,151crore during 2007-08 to 23,530 lakh aggregating to Rs.6,16,456 crore during 2008-09.

Worldwide, South Korea boasts of having the highest density of ATMs of about 1,600 suchmachines per million of population. The US has about 1,300 ATMs per million of people. Thetwo emerging economies India and China have poor record on ATMs density, due to theirhuge population. While China has about 98 ATMs per million of population, India has onlyabout 40 ATMs per million of population, which is less than half of China.

Chart 11: Growth in the No. of ATM Outlets.


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Market Share

SBI tops the chart for having the highest number of ATM outlets in the country. It has 11,404ATM outlets and constitutes 26 % of market coverage. ICICI Bank has the 2nd largest ATMnetwork in the country with 4,713 ATM centers, followed by Axis Bank with 3,595 ATMs. Nextcomes HDFC Bank with 3,295 ATMs with the highest growth rate of 66 % in the industry.

Chart 12: Market Share of Individual Players.

Share in the ATM outlets as on 31st March 2009

26%

11%

8%8%5%5%

31%

3%

4%

SBI ICICI Axis HDFC PNB

Canara UBI BOB Others

Share in the ATM Outlets as on 31 st March 2008

24%

11%

8%

35%

6%6%4%

3%

3%

SBI ICICI Axis Canara HDFC

PNB UBI BOB Others


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Table 5: Market Share of Individual Players.

Sr. No. Banks Mar-08 Mar-09 Mar-10(Estimated)

Rank No. ofATMs

Rank No. ofATMs

Rank No. ofATMs

1 State Bank of India 1 8,433 1 11,404 1 20,0002 ICICI Bank 2 3,881 2 4,713 2 5,6003 Axis Bank 3 2,764 3 3,595 4 4,5004 HDFC Bank 5 1,980 4 3,295 3 4,6005 Punjab National Bank 6 1,516 5 2,150 5 2,8006 Canara Bank 4 2,006 6 2,019 7 2,0307 Union Bank of India 7 1,146 7 1,790 6 2,5008 Bank of Baroda 8 1,106 8 1,179 8 1,2509 Syndicate Bank 9 1,000 9 1,090 9 1,190

10 Corporation Bank 10 956 10 1,032 10 1,11011 IDBI Bank 11 755 11 900 11 1,05012 Oriental Bank of Commerce 12 741 12 845 12 95013 Andhra Bank 13 656 13 778 14 82814 Indian Bank 14 600 14 755 13 91015 Federal Bank 15 516 15 617 15 71016 Indian Overseas Bank 17 451 16 576 16 70017 Bank of India 18 435 17 500 17 56518 UCO Bank 23 305 18 414 18 52519 Central Bank of India 19 367 19 400 23 435

20 Dena Bank 22 313 20 387 19 50021 Kotak Mahindra Bank 22 313 20 387 21 46022 Indusind Bank 21 337 21 364 29 23423 Vijaya Bank 25 272 21 364 22 45524 Citibank 16 465 22 359 26 36025 ING Vyasya Bank 30 203 23 351 20 49026 Bank of Maharashtra 20 345 24 345 24 42027 Karur Vyasya Bank 24 291 25 324 25 39028 South Indian Bank 26 225 26 280 27 32529 Jammu & Kashmir Bank 29 210 27 250 28 30030 United Bank of India 32 164 28 226 30 29031 Allahabad Bank 28 211 29 211 31 211

32 Yes Bank 35 115 30 190 19 50033 Standard Chartered Bank 27 223 31 188 33 19034 Karnataka Bank 33 141 32 171 32 20035 HSBC 31 177 33 150 34 15036 Development Credit Bank 36 112 34 112 35 12037 ABN Amro 34 116 35 89 36 9038 Barclays Bank 37 10 36 11 37 1239 Others 932 840 900

Total 34,789 43,651 58,850


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Segment Performance

The Merchant Point of Sale (POS) Terminals in India have increased by 9% during the year2008-09. There are more than 4.25 lakh POS Terminals in the country as on March 2009.Despite of fall in number of POS Terminals, ICICI Bank has the largest network with 1.80lakh POS Terminals with a market share of 42% followed by Axis bank with 1.15 lakh POSTerminals with a market share of 27%.

Table 6: Market Share of Individual Players.

Sr.No.

Banks March-08 March-09 March-10(Estimated)

Rank No. of POSTerminals



1 ICICI Bank 1 200,000 1 180,000 1 210,000

2 AXIS Bank 2 74,450 2 114,500 2 155,000

3 HDFC Bank 3 61,000 3 70,000 3 75,000

4 HSBC 5 12,000 4 15,000 4 18,000

5 Citibank 6 11,500 5 12,500 5 13,500

6 BOB Cards 4 13,793 6 12,311 6 12,500

7 IDBI 7 6,318 7 6,754 7 7,5008 Andhra Bank 8 3,798 8 3,783 8 3,800

9 Standard Chartered Bank 12 1,515 9 2,083 11 2,500

10 Development Credit Bank 15 222 10 2,269 9 3,500

11 Jammu & Kashmir Bank 11 1,547 11 1,958 10 3,200

12 Vijaya Bank 9 1,903 12 1,736 13 1,600

13 Bank of India 10 1,592 13 1,640 12 1,700

14 Canara Bank 13 1,192 14 1,353 14 1,500

15 Central Bank of India 14 647 15 751 15 850

16 Deutsche Bank 16 27 16 79 16 130

391,504 426,717 510,280


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Chart 13: Comparative Market Share of Individual Players.


27%

16%

2%3%3%

4%4%

42%

ICICI

AXIS

HDFC

HSBC

Citibank

BOB

IDBI

Others

Chart 14: Bank Wise Growth of Merchant POS Terminals.

Growth in the no. of Merchant POS Terminals

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000225,000

ICICI

AXIS

HDFC

HSBC

Citibank

BOB

IDBI

Andhra

SCB

Others

Banks

No.ofPOSTerminals

2008 2009 2010 (Estimated)


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Total Spends of Debit & Credit Cards at Merchant POS Terminals

As per the RBI release, the total spends with credit and debit cards at merchant POSterminals increased during the year from Rs. 70,506 crore in the year 2007-08 to Rs. 83,903crore in the year 2008-09 reporting a growth rate of 19%, which was much lower than the42% recorded in the year 2007-08.

Chart 15: Growth in the Value of Debit & Credit Card Transactions at ME POSTerminals(Rs. in Crore)

Growth in the value of card transactions

83,903

70,506

49,533

39,78431,047

0

10,000

20,000

30,00040,000

50,000

60,000

70,000

80,000

90,000

2004-05 2005-06 2006-07 2007-08 2008-09

Year

ValueofTran

sactions(Rs.Cr).



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(Compiled by P. Ravindra)

1) Payment and Settlement Systems Act, 2007

The Payment and Settlement Systems Act, 2007 (the PSS Act, 51 of 2007) and the tworegulations (i) Board for Regulation and Supervision of Payment and Settlement SystemsRegulations 2008 and (ii) Payment and Settlement Systems Regulations, 2008 havecome into effect from August 12, 2008. The PSS Act stipulates that no person other thanthe Reserve Bank shall commence or operate a payment system, except under and inaccordance with an authorisation issued by the Reserve Bank as per the provisions ofthe PSS Act.

All persons operating a payment system or desirous of setting up a payment system asdefined in the PSS Act, need to apply for authorisation to the Reserve Bank, unlessspecifically exempted in terms of the PSS Act, in the form and manner as stipulated inthe Payment and Settlement Systems Regulations, 2008. The Stock Exchanges and theClearing Corporations of the Stock Exchanges have been exempted from the provisionsof the PSS Act.

Since the PSS Act became effective, the Reserve Bank has received applications forauthorisation from operators/proposed operators of prepaid and other cards, paymentgateways, money transfers, mobile payments, Automated Teller Machine (ATM) network,etc. As published in the RBI Annual Report 2008-09, authorisation had been accorded to

21 entities for operating specified payment systems.

2) National Payments Corporation of India (NPCI)

Indian Banks Association (IBA) initiated the process for setting-up an umbrellaorganization for retail payment systems, as envisaged in the Vision Document 2005-08 ofRBI. Accordingly, National Payments Corporation of India (NPCI) has since beenincorporated as a company under section 25 of the Companies Act. NPCI has anauthorized capital of Rs.300 crore. The Reserve Bank, which is currently burdened withthe responsibility of all type of payments, plans to hand over most of the retail operationsto the NPCI in the next one year. This excludes RTGS transactions that will continue tobe handled directly by the apex bank.

NPCI will be majority owned by public sector banks that altogether will have 51 per centstake in the company, while the rest of the holding will be with private and foreign sectorlenders. State-owned banks that would own majority stake in NPCI are State Bank ofIndia, Punjab National Bank, Canara Bank, Union Bank of India and Bank of Baroda.While private banks like ICICI Bank, HDFC Bank, Citi and HSBC will be the otherstakeholders. IBA has also appointed a consultant to recruit permanent CEO, CFO andother top executives of the company within a period of six months


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3) M-commerce - Its a mobile world

Much like the concept of e-commerce, a type of business conducted 100% electronicallythrough computer networks; m-commerce is a concept of buying and selling goods andservices via wireless networks with a mobile device. It is simply defined as the mobileexecutions of transactions. The credit card became widespread and the growth of theInternet and e-commerce led to a great variety of electronic payment solutions. With over300 million mobile phone subscribers in India and growing at about 8 million a month, thelatest trends in the payment industry are mobile payment solutions. As content deliveryover wireless devices becomes faster and scalable, there is wide speculation that m-commerce will surpass wire line e-commerce as the method of choice for digitalcommerce transactions. With the expansion of mobile commerce offerings, customers inIndia could use mobile phones to make financial transactions such as utility billpayments, purchase of movie tickets, paying for taxi fare and recharging prepaid phone

cards.

Predominantly, two distinct models are in vogue in countries where mobile commercehas taken off the bank-led model and the telecom company-led model. The telecomcompany led model is preferred in countries, which have relatively less coverage offormal banking facilities (e.g. Kenya). India has adopted the bank-led model. Operativeguidelines on mobile banking for banks were issued by RBI and only banks which arelicensed and supervised in India and have a physical presence in India will be permittedto offer mobile banking services. As per RBI Annual Report 2008-09, approvals havebeen accorded to 29 banks to provide mobile payment services.

The services shall be restricted only to customers of banks and holders of debit/credit

cards issued as per the extant Reserve Bank of India guidelines. Only Indian Rupeebased domestic services shall be provided. Use of mobile banking services for crossborder transfers is strictly prohibited. Banks may also use the services of BusinessCorrespondent appointed in compliance with RBI guidelines, for extending this facility totheir customers. For the present, banks are permitted to offer this facility to theircustomers subject to a daily cap of Rs. 5,000/- per customer for funds transfer andRs.10,000/- per customer for transactions involving purchase of goods/services.

Banks providing mobile banking services shall comply with the following securityprinciples and practices for the authentication of mobile banking transactions:

All mobile banking shall be permitted only by validation through a two-factor

authentication.

One of the factors of authentication shall be mPIN or any higher standard.

Where mPIN is used, end-to-end encryption of the mPIN is desirable, i.e mPIN shallnot be in clear text anywhere in the network.

The mPIN shall be stored in a secure environment.


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4) Online payment will be more secure in the future

In a bid to make online payments more secure and arrest credit and debit card frauds,the Reserve Bank of India has issued some guidelines. A RBI directive has ensured thatfrom 1st August 2009, credit and debit card-issuing banks must provide for additionalauthentication of information over and above what is visible on the physical card. In otherwords, the cardholder must key in an extra security code to complete a onlinetransaction. The RBI has also made it mandatory for banks to send SMS and onlinealerts for all online transactions exceeding Rs 5,000. The central bank will also shortlyprescribe security measures to be employed for card usage in interactive voice response(IVR) transactions, where cardholders punch in their card details into the telephone tomake payments. Industry observers feel that although RBI directive may be a dampener

for e-commerce industry initially, in a few months it would help the space to grow fasteras it will deter online frauds.

5) More Point of Sale (POS) Terminals to hit Tier 2 and Tier 3 Cities

POS terminals, having gained significance acceptance in urban cities, are now ready tomake it in tier-2 and tier-3 cities as there is a large cash economy in smaller cities andthere is a growing realization to reduce the dependence on cash. Banks have startedexploiting this opportunity. New POS terminals, apart from the traditional paymenttransactions, will offer a gamut of value added services through them. Banks have alsorealized that in order to encourage payment cards usage they need to focus on

increasing POS terminals across merchant establishments. Presently, there are over 4lakh POS terminals in India and with the increasing retail boom, industry experts saysthat in the next three to four years, the numbers may grow anywhere around 2 million.The rate of fall in the cost of terminals is also likely to push the growth of terminal base.

6) Cash withdrawals at POS Terminals

In a customer-focused move, the Reserve Bank of India (RBI) has permitted cashwithdrawals using debit card at point of sale (POS) terminals with the merchantestablishments. Accordingly, customers can withdraw up to Rs.1,000 on per day, atmerchant establishments, irrespective of whether they make a purchase at the givenpoint or not.

Considering the fact that presently customers can withdraw cash only from ATMs, thebank has described the move as a further step towards enhancing the customerconvenience in using the plastic money.'


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7) Pre-paid Payment InstrumentsPrepaid payment instruments are payment instruments where value for use is stored inadvance, such as, smart cards, magnetic strip cards, internet accounts, internet wallets,mobile accounts, mobile wallets, paper vouchers, etc. Prepaid payment instrumentsenhance convenience as a mode of payment in lieu of cash. Also, this facilitates e-payment for goods/services purchased/availed through internet/ mobile. The maximumloss on account of fraudulent use of the card is limited to balance available on the card.

The development of any new payment product and mode of payment requires theconfidence of the public in the efficiency and safety of the technology and the systemsoffered. Taking into consideration these issues, the Reserve Bank of India issued a set ofguidelines in April 2009 for Pre-paid Payment Instruments in India.

The pre-paid payment instruments are classified under three categories viz. (i) Closedsystem payment instruments, (ii) Semi-closed system payment instruments, and (iii)Open system payment instruments. Banks and non-banks would be permitted to issuepre-paid payment instruments in the country. While banks would be permitted to issue allcategories of these instruments, non-banks would be permitted to issue only semi-closedsystem payment instruments. Closed system payment instruments are not classified aspayment systems. The maximum value of any pre-paid payment instrument has beenfixed at Rs 50,000.

8) Bio-metric ATMS

Banks in India have started introducing biometric automatic teller machines (ATMs) as itseems to be an effective way of preventing PIN theft and is also a channel to expand abank's reach to the rural and illiterate masses. However, personal identification number(PIN) facility would also be available. The customer would also be guided by voice inlocal languages on how to use the ATM. Besides, many educated customers will alsoprefer bio-metric ATMs as it will add to the safety and security of their money. Keepingthis in view, banks are planning to take this technology to the masses.

9) Challenges ahead for the Payment Systems

The RBI has taken a number of steps during the last few years to build an efficientpayment and settlement infrastructure and a strong institutional framework. There are a

number of challenges for the payment and settlement system, fortunately, a legalframework for the system has been provided by the Payment and Settlement Act 2007.The primary challenges are to:

to keep infrastructure and operational cost low;

incorporate risk management system to reduce and prevent frauds;

to create awareness and education of both employees as well as customers fortaking preventive steps in using various payment option available through internet orany other channels;


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popularizing the advantages of using of electronic medium for funds transfer;

migration from paperbased transactions to electronic mode;

risk mitigation;

improving infrastructure especially in rural areas;

improving quality of the payment services;

effective technology for funds transfer;

centralization of settlements;

to extend the banking facilities to the vast majority of population;

to provide a fairly exhaustive range of products to customers;

continuously devise strategies to meet the evolving requirements of new deliverychannels;

Management of multiple payment channels. For eg: cheques, DDs, RTGS, NEFT,ECS, and NECS.

P Ravindra is General Manager, Compliance & Risk Managementwith Venture Infotek Global Pvt. Ltd. A post Graduate in Sciencesand PGDFM, Ravindra has over 32 years rich and distinguishedexperience in Banking Operations, Credit Administration, Product

Development, Portfolio Management, Marketing, Client Servicing,Business Development with a PSU Bank and in Payment ProductsManagement and Risk Management with Venture Infotek Global Pvt.Ltd.


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Industry Survey 2009

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