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Commentary

Rupay Kicks Off with Debit Cards

image The National Payments Corporation of India (NCPI) has started Rupay, a domestic card payment network. NPCI already is at the back-end of the India wide bank ATM network and runs IMPS, the Interbank Mobile Payment Service (Read of my experience with IMPS). It has the ability to instantly find out, given a debit card, how much money you have in your account.

The first launch is for a debit card, which will be accepted in over 91,000 ATMs and 6 lakh PoS terminals, but in India only. They have tied up with DISCOVER (think Diners Club)  for international acceptance, which should help Indians travelling abroad (or buying off foreign web sites).

The first banks to offer Rupay Debit cards are Bank of India and Union Bank of India. The PoS terminal acceptance though, will include terminals from Axis Bank, Bank of Baroda, Corp bank and SBI. Conspicuous by their absence are the ICICI Bank and HDFC Bank, which have a large PoS Network around the country. (They’ll come on board. They have to.)

Fees will be cut substantially by using Rupay, by about 40% for banks and lower per-transaction fee for merchants.

Credit cards is next, but will only be available in March 2015. That’s three years away.

Will Rupay replace Visa and Mastercard? If transaction fees are lower and fraud instances can be handled well, I think a Rupay network could easily beat the current reach of Visa and Mastercard. While there are substantially more debit cards than credit cards (see chart), the value of transactions made on credit cards is higher. In Jan 2012, the POS transactions (non-ATM) were Rs. 5060 cr. (50.6 billion) on debit cards versus a larger Rs. 8868 cr. (88.68 bn) on credit cards. So we will see MC and Visa continue to serve more than 50% of the transactional space until at least 2015 when Rupay goes into credit cards, and perhaps five years after that until Rupay irons things out. So unless you have a 20 year horizon, you shouldn’t write off Visa and Mastercard in India.

(Why aren’t we doing things faster, NPCI? )

Will Rupay be accepted for online transactions? The press release says, “in due course”. There is currently no online payment gateway that supports it, and you don’t have that two factor authentication (that is, a second password known only to the card holder) for an online transaction that is currently done by the credit card layers at Mastercard and Visa.

(If you own a debit card, why not just do a direct bank transfer through netbanking? Most web sites support most banks anyhow. But debit cards are very popularly used for online transactions, so I presume there’s more to it.)

Is Rupay going to be more efficient? Of course it is. I’ve used IMPS and it takes a fraction of a second to transfer money from one account to another, even inter-bank. Fraud data analysis and redressal is also faster. So yeah, I think they can be way more efficient than Visa or Mastercard for Indian transactions. Plus it’s greater value for lesser cost – with no round trips abroad, there’s a saving on bandwidth (minor) and exchange rates/fees (major).

This is a must-watch. NPCI has been impressive, and I hope Rupay kicks off big time. I just wish it would move faster into credit cards.

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