Thursday, January 5, 2012

Indian 'Rupay' Card Causes Trouble In Asia For MasterCard, Visa

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The National Payments Corporation of India has finalized the commercial launch of the proposed India card which would be a domestic alternative to the global payment processing firms. MasterCard is the second largest global payment solutions company in the world and provides a variety of services to support the credit, debit and related card payments of over 24,000 financial institutions globally and given the size of India, this could have an impact on MasterCard’s international transactions growth, which we discuss below.

Its main competitors are Visa, American Express and Discover Financial.

Transaction processing is the major revenue source for MasterCard and by our estimates constitutes about 32% of the $293 Trefis price estimate for MasterCard’s stock.

The Reserve Bank of India in 2009, had asked the Indian Bank Association to launch a non-profit payment solutions company to meet the requirements of domestic banks. After almost two years of planning, NPCI has finalized the name of the proposed card as Rupay which will launch later this year.

The Rupay will resemble China’s Union Pay which is the domestic real-time payment processing firm for Chinese banks.

RBI in its vision paper on payment systems in India said that the need for such a system arises from two major considerations: 1) the absence of a domestic price setter has caused the Indian banks to bear the high cost for affiliation with international card associations, and 2) the connection with international card associations resulting in the need for routing even domestic transactions, which account for more than 90% of the total, through a switch located outside the country.

Electronic Payment Market in India
India has been one of the fastest growing countries for payment cards in the Asia-Pacific region. According to the RBI, debit card transactions in India rose 49% in January 2011 to reach Rs. 37 billion (approximately $830 million) from about Rs. 25 billion ($557 million) last year. The number of debit cards in use also rose by 25% during this period. Credit card transactions also rose 28% in January 2011 compared to last year to about Rs 69 billion ($1.54 billion).

How is MasterCard Affected?
In our analysis of MasterCard, we estimate that the number of transactions processed by MasterCard will grow from 22.6 billion in 2010 to about 56.8 billion by the end of our forecast period at a compound annual growth rate of 14%. Much of this growth will come from the Asia-Pacific region as consumers in this region are only beginning to embrace widespread use of electronic payment methods.

If India card Rupay gained popularity and other countries in the Asia-Pacific region decide to follow suit, MasterCard’s number of transactions could only grow at a rate of lower rate than we forecast. In a scenario where the number of transactions processed by MasterCard would reach only 50 billion by the end our forecast period and grow at a slower rate of around 12% annually, this would cut our price estimate for MasterCard by about 5%

Visa & MasterCard gone. Rupay card, bring it on

Rupay Card Logo
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Finally it's here! The much talked about India card which will replace global payment players MasterCard and Visa in India. CNBC-TV18's Gopika Gopakumar finds out more about the Rupay Cards.

It may not be long before the logos of Visa and MasterCard disappear from your plastic cards. Instead these will be replaced by an Indian name Rupay. This is the new card payment scheme launched by the National Payment Corporation of India, a company started three years back by 10 banks, to oversee all retail payment systems in India. Currently, all card payments are routed through Visa or Mastercard which process these transactions outside the country, but this may not be the case in the future.

"There should be something domestic. Payment information is very sensitive. So there has to be repository of payment information with some institution. Why should banks in India pay such high fee to MasterCard or Visa," AP Hota, CEO, National Payments Corporation of India said.

Currently, banks pay around Rs 300 crore every year to Visa and MasterCard for processing all debit and credit card payments. NPCI says Rupay will reduce the cost for both banks and customers.
"We believe that it's possible to reduce the processing fee that banks pay to MasteraCard and Visa by half if not more. Rupay will be aiming at reducing the cost for the bank," Hota added.
Bankers too feel Rupay will be a viable option.

Alok Mishra, CMD, Bank of India , said, “It is indigenous and will be cheaper. Most people here don't travel abroad nor do they need settlement for Visa, MasterCard. What they require is a settlement here. And I think Rupay will work for them.”

Rupay's strategy
To begin with it focuses on tying up with 82 regional rural banks and 100 urban cooperative banks. Having issued 10,000 debit cards, it now plans to scale up by issuing Aadhar-enabled financial inclusion cards.
NPCI says it will be a while before the commercial banks start issuing Rupay debit cards as most of them already have tie-ups with global players. Besides, the regulator favours competition in this segment and so unlike the Chinese, may not make it mandatory.