Schemes rolled out by banks, mobile operators and the Indian government provide a platform for increased cards circulation and a growing proportion of the population becoming banked. From prepaid cards to smartphone payments, the potential is huge as the younger generation and rural population are targeted
India’s economy has been characterised by strong growth. Despite the country’s economic progress during the last ten years, the penetration of financial services is still relatively low, indicating untapped potential. India’s economic growth has enhanced job creation and household income, and led a greater number of previously unbanked people to use financial services.
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Changing lifestyles, the rise of a young and employed population, increased per capita disposable income, and the growing popularity of online shopping all supported the growth of the cards and payments industry between 2010 and 2014.
Banks have responded to the opportunity and introduced a number of cards targeted at the unbanked population. Leading card issuers have offered improved products, services and marketing campaigns, and the government has encouraged electronic payments through its financial inclusion programme.
In terms of the number of cards in circulation, Indian payment cards – comprising debit, credit and charge cards – registered significant growth from 2010 to 2014, at a compound annual growth rate (CAGR) of 18.55%, increasing from 246.2m cards in 2010 to 486.4m in 2014. In terms of transaction value and volume, payment cards registered respective CAGRs of 20.78% and 14.41%, with a similar trend expected over the next five years.
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By GlobalDataUse of payment cards is increasing
Cash continues to be the most popular payment instrument for the majority of Indians, primarily due to a limited public awareness of other payment instruments, or little to no access to banking infrastructure, especially in rural areas. Cash is mainly used for small-value retail payments, utility bills, taxes and transport fares. Use of cash is particularly high among the rural population.
Consumer acceptance of payment cards gradually increased during the review period, as the government and banks began to provide basic financial access to the unbanked population. This included the expansion of infrastructure such as ATMs, the appointment of banking correspondents (BCs), the launch of new branches, and specific efforts to change Indian consumer payment habits.
RuPay to compete with Visa and MasterCard
The National Payment Corporation of India (NPCI) launched the RuPay domestic card scheme in March 2012, to increase payment card penetration and competition among card scheme providers. Public sector banks such as SBI, Bank of Baroda, Bank of India and Union Bank of India launched RuPay debit cards in the same year.
In August 2014, the Indian government announced the Pradhan Mantri Jan-Dhan Yojana (PMJDY) programme to provide basic affordable financial services such as banking, savings and deposit accounts, remittances, credit, insurance and pensions to the unbanked population. An unbanked Indian citizen aged over ten can open a new bank account with a zero balance at any bank branch or through BCs, specially designed for the purpose of opening accounts under the scheme. Account holders are issued a RuPay debit card for use at ATMs and retailers.
As RuPay’s processing fee is 40% lower than its competitors, it is expected to gain significant domestic market share and increase penetration rates. It will also make it more viable for small retailers to accept cards, increasing overall acceptance.
Mobile payments are gaining prominence
Mobile payments are an emerging trend in India and new systems allow merchants to process credit and debit payments via smartphones and tablets. Younger consumers in particular are extremely comfortable with various types of electronic payment methods, and typically use smartphones to make payments.
Although mobile payment systems have been available in the Indian market since 2010, many of the companies had to close down due to low adoption and technology issues. For instance, Beam Money Private Ltd, which was offering Beam Money prepaid wallet, wound up their wallet service in June 2013 on account of low adoption.
A growing preference for electronic payments offering enhanced security, coupled with a growing younger population and increased smart phone sales, saw new companies enter the Indian market. For instance, Vodafone partnered with ICICI to launch M-Pesa in December 2013.
Another mobile payment solution provider, PayTm in January 2014, launched a service called PayTm Cash Wallet, with which users can pay for different services. Likewise, Ezetap and Mswipe are offering mobile payment services.
As of January 2015, there are 26 companies authorised by the central bank to provide mobile payment services. The country has reached a stage where mobile payments are poised to jump into a higher trajectory, driven largely by high mobile penetration, growing adoption of smart phones and availability of new technology such as 3G and 4G.
Mobile payments are well poised to emerge as a preferred retail payment instrument over the forecast period, in terms of costs, convenience, speed and reach. All this points to more opportunities in the offing for both existing and new entrants.
Growing banking infrastructure
The number of ATMs increased at a CAGR of 30.44%, from 74,505 in 2010 to 215,660 in 2014, and is anticipated to increase further over the next five years, from 274,346 in 2015 to 474,017 in 2019 at a CAGR of 14.65%.
Banks are also expanding their ATM networks and expanding generally into rural areas to provide basic financial services to the unbanked population.
The number of POS terminals in India recorded a CAGR of 22.23%, rising from 589,328 in 2010 to 1.3m in 2014. This makes potential for card-based payments in the country likely to grow. POS terminal penetration also rose from 49.3 per 100,000 in 2010 to 104.4 in 2014. It is expected to expand further to reach 174.9 in 2019.
The rapid growth in India’s retail sector has led to demand for secure and low-cost POS terminals, as companies move towards cashless transactions. Currently, POS terminals are relatively expensive.
In July 2013, Ezetap launched a low-cost mPOS terminal, costing around $50 (INR3,000.0), which can be plugged into a smartphone. The device has a magnetic strip, chip card reader and integrated PIN pad.
The company’s mPOS supports ten banks in India. SBI and Ezetap tied up in June 2014 to deploy mPOS devices in semi-urban and rural areas, which can be used to make card payments or withdraw cash. Nearly 4,000 of the devices had been installed by October 2014, and the bank plans to launch another 500,000 the end of 2019.
There are ten new competitors planning to enter the market, including Mahindra Comviva, MRL Posnet, Aassan Pay, Bijli Pay, PayNear and Indepay. As of June 2014, there were 24,000 mPOS devices in India.
Prepaid cards are gaining prominence
Indian consumers tend to prefer to spend within their means, giving rise to prepaid card popularity. Other benefits include being accessible to people who do not qualify for a credit card. The number of prepaid cards grew from 12.6m in 2010 to 49.8m in 2014, at a CAGR of 41.12%.
RBI has had a key role in promoting innovative payment technology and reducing cash payments, allowing all manner of organisations to issue prepaid cards. The cards also enable government benefit payments.
The Indian government launched the Saral Money Prepaid Card in December 2012, to provide banking services to those unable to open a bank account due to lack of supporting documents.
The project was launched in New Delhi and expanded to other cities. The prepaid card was launched by five prominent banks, Axis Bank, HDFC Bank, ICICI Bank, Indian Overseas Bank and SBI, in collaboration with Visa and Aadhar.
In December 2014, RBI raised the limit that can be loaded onto prepaid cards from $824.7 to $1,649.5. It also increased the validity of gift cards from one to three years.
RBI has also permitted banks to issue Indian rupee-dominated prepaid cards to foreign nationals and non-resident Indians (NRIs), on condition that cards are issued by an Indian bank operating overseas directly, or by co-branding with money transmitters up to a maximum amount of $3,298.9 by loading from a KYC-compliant bank account. These prepaid cards are activated by the bank after the traveller arrives in India, and cash withdrawals are restricted to $824.7 pcm.
