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  1. Country Surveys
November 28, 2013

Country Survey: India

Growth in cards and payments in India continues to be driven by the large unbanked population, estimated to be 43.8% in 2012. The Reserve Bank of India has been behind regulatory changes aimed at financial inclusion and the issuing of prepaid cards to those without bank accounts, encouraging further growth, EPI writes

By Verdict Staff

Growth in cards and payments in India continues to be driven by the large unbanked population, estimated to be 43.8% in 2012. The Reserve Bank of India has been behind regulatory changes aimed at financial inclusion and the issuing of prepaid cards to those without bank accounts, encouraging further growth, EPI writes

The Indian cards and payments industry registered significant growth during the review period (2008-2012). The card payments channel grew at a CAGR of 27.05%, to reach 456.8m cards in circulation by the end of 2012. In value terms, the card payments channel was worth INR19.4trn (US$363bn) in 2012. Changing lifestyle demographics, increased popularity of online shopping and higher disposable income per capita supported the growth of cards in circulation.

Unbanked population driving the growth of prepaid cards

According to 2012 Reserve Bank of India estimates, around 43.8% of the Indian population remains unbanked, and relies heavily on cash transactions. The total unbanked population registered INR46.5trn worth of cash transactions in 2012. Reserve Bank of India regulations relating to financial inclusion mean that banks are presented with a significant opportunity to target and market prepaid card products, especially in rural areas.

Shift away from cash-based transactions

India is the world’s second-most-populous country, with a population that reached 1.2bn by the end of December 2012. Overall, 43.8%of the population remains unbanked, and the country’s payment systems are relatively underdeveloped.

Reserve Bank of India has undertaken various initiatives to increase financial inclusion and extend banking operations to unbanked regions. Prepaid cards have been issued to people without bank accounts, for instance, and are therefore anticipated to post the largest levels of growth over the forecast period.

Domestic payment scheme RuPay to compete with Visa and MasterCard

In March 2012, the National Payment Corporation of India (NPCI) launched RuPay, India’s own card payment network. Established at the request of Reserve Bank of India, RuPay aims to compete with existing global network providers such as Visa and MasterCard. As a part of this initiative, leading public sector banks such as State Bank of India (SBI), Bank of Baroda, Bank of India and Union Bank of India launched the first set of RuPay debit cards in 2012. It is expected to break Visa and MasterCard’s stronghold on the domestic market and also lead to a reduction in processing fees charged by these operators.

As the processing fee for RuPay is 40% lower than its competitors, it is expected to gain a significant share of the domestic market; through being more affordable, it makes accepting cards a viable payment option for small retailers, further incentivising the adoption of cards.

Lower charges on debit card transactions at POS terminals to encourage card payments

In India, the use of debit cards has been largely limited to cash withdrawals at ATMs rather than purchases at POS terminals. In 2012, the value of debit card transactions accounted for 89.7% of total card transactions in value terms at both ATM and POS terminals. However in June 2012, Reserve Bank of India capped the Merchant Discount Rate (MDR) for debit card transactions at 0.75% for any transaction below INR2,000, and 1% for any transaction above INR2,000 from earlier MDR charges of 1-2.5%. However, the new lower rate is expected to drive the use of debit cards and encourage retail merchants to install the necessary infrastructure to support this payment method.

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