Friday, September 30, 2011

Move over Visa, MasterCard. IndiaPay (now Rupay Card) is here

Rupay, the country's first indigenous payment gateway, is set to take on the global big boys - MasterCard and Visa - when it launches in the middle of next year.

The National Payments Corporation of India, the owner of Rupay, will fire the first salvo by charging only half what MasterCard and Visa levy on merchant establishments.

At present, merchant establishments are charged Rs 2 for every transaction worth Rs 100.

A card's issuing bank gets around 80 per cent of that, while the merchant's bank or acquirer bank gets 15 per cent.

The service provider gets the remaining 5 per cent. The cost of card usage, if borne by a merchant establishment, could eat up 50 per cent of its profit.

That is seen as factor for the low acceptability of cards among small and medium merchants.

Observers ask if NPCI halves the transaction charge, why banks would issue Rupay cards when it's a losing proposition for them.

The reason is simple: if merchants have to absorb a lower transaction charge, they will increasingly insist on Rupay.

"We expect merchant demand for the product will force banks to adopt Rupay Card," said a source.

Still, there are several issues that need to be sorted out before Rupay gains acceptability.

Firstly, point-of-sale terminals, in which banks have made huge investments, are configured for MasterCard and Visa cards.

But NPCI is confident that this problem can be solved, as it has the backing of the government.

Rupay's shareholders consist of 10 banks, six of which are public sector banks. It is promoted by the Reserve Bank of India.

The government and the central bank want to promote transactions channelled through banks, rather than in cash, which is an inefficient mode of payment.

Money lying as cash in the hands of an individual does not have any multiplier effect, but can be leveraged if it is with banks. 

Around 95 per cent of transactions in India are still carried out in cash, and studies suggest underutilisation of debit cards.

According to a technical paper by Ashish Das and Rakhi Agarwal of the Indian Institute of Technology, Bombay, though there are 19 million credit cards and 190 million debit cards in the system, there are just 11 transactions per credit card and one transaction per debit card a year.

The study further says there are 500,000 point-of-sale terminals in the country. On average, a terminal sees less than one debit card transaction and 1.3 credit card transactions a day.

Studies have also found a correlation between efficiency in monetary transactions and increase in economic growth.

A 10 per cent increase in card payments can contribute 0.5 per cent to GDP growth. And that is what the government and the banking regulator is aiming for.

NCPI is planning Rupay Card only for debit cards to encourage and increase their use among Indians.

The risk-free nature of debit card transactions, compared to those of credit cards, is considered more suitable for Indians, most of whom are seen as risk averse. 

Launch details of Rupay Card

The National Payment Corporation of India Ltd (NPCI) is planning to come up with India's first domestic payment service provider 'Rupay'. The 'Rupay' ATM card is aimed to target no frills account holders (NFAs) in collaboration with banks.

with this venture, majors in the payment space namely Visa and MasterCard are set to receive the first domestic competitor in Indian system.

All banks have been asked to open no frills accounts as part of the financial inclusion drive of the government.

NPCI aims to leverage on ATM switching infrastructure (the National Financial Switch) which will enable 'Rupay' cards to be used only on ATMs and biometric micro ATMs.

"As of now we are talking to four nationalised banks for introducing the Rupay ATM cards, which they will, to begin with, issue only to their no-frills accountholders. It will be a debit card which will work only on ATMs and biometric micro ATMs," said Mr A.P. Hota, Managing Director and Chief Executive Officer, NPCI.

"Banks will have to weigh whether to give 'Rupay ATM cards' only to new customers or also to old customers. They will have to write to customers giving them the option to surrender existing cards and get new ATM cards. This itself is a big job," said Mr Hota.

Speaking about competition with Visa and MasterCard, he said, "Ultimately, the winner would be the one who can offer the better product and better service at an affordable rate. If MasterCard and Visa can really provide service at an affordable rate, they will succeed. To beat NPCI or Rupay card, they might really lower their price drastically. And if they can sustain that for a decade, really NPCI is out. We have better things to do."

In this regard NPCI seeks to collaborate with the 82 regional rural banks (RRBs) of the country too.


After almost two years of planning, the National Payments Corporation has at last finalised the proposed unique India Rupay Card which once commercially launched would be an domestic alternative to the global real-time payment processing firms like Visa and MasterCard.

"We have finalised name of the proposed card as Rupay at our board meeting here today. We have also finalised the logo for the same," a senior official of the RBI-set up National Payments Corporation of India (NPCI), told PTI this evening. The official sought not to be named.

The official further said the leading financial consultancy firm Ernst & Young(E&Y) will develop and roll out the entire architecture, including the design and software for the Rupay card rollout.

A senior E&Y official confirmed the development to this agency. He further said, the NPCI will initially launch a domestic ATM/debit Rupay cards to begin with and then would hit the credit card market later on.

In 2009, the RBI had asked the Indian Banks Association to launch a not-for-profit company and design a rival card, then tentatively called India Card (Rupay Card), that meets the requirements of the domestic banks.

And finally, RBI plan is materialising and Rupay will be like the Union Pay of China, which is the domestic real-time payment processing firm for Chinese banks, and was planned to be launched last year.