Monday, February 13, 2012

NPCI to launch PIN-based debit cards by March

Rupay Card Logo
Source :

NPCI is in talks with big banks such as ICICI Bank Ltd, HDFC Bank Ltd, Corporation Bank and IDBI Bank Ltd among others to issue RuPay debit card

National Payment Council of India (NPCI), set up by the Reserve Bank of India to promote card payments system, will launch its RuPay debit card in March. RuPay is the country’s first domestic payment card network and aims to match existing payment facilitators such as Visa and MasterCard and provide debit and credit card services.

“The countdown has begun and around 20-25 March we will launch RuPay debit card,” says A.P. Hota, chief executive officer and managing director of NPCI. “It will be a personal identification number (PIN)-based debit card and not a signature-based card.”

At present, RuPay automated teller machine (ATM) cards are available with a few rural banks.

What will you get?

Since it is a PIN-based card, it will be more secure than signature-based cards. Here, the verification is done via a PIN and not a signature. “The card will be PIN-based and will have a magnetic stripe on the reverse side. Disputes are less in PIN-based transactions,” Hota says.

The RuPay debit card can be used across all ATMs in the country. It can also be used at 200,000 point of sales (PoS) terminals which are expected to come up by March and increase to 600,000 by June. The RuPay debit card can only be used in India as of now.

NPCI is in talks with big banks such as ICICI Bank Ltd, HDFC Bank Ltd, Corporation Bank and IDBI Bank Ltd among others to issue RuPay debit card. NPCI’s promoter banks such as State Bank of India, Bank of India, Bank of Baroda, Union Bank of India, Canara Bank and Punjab National Bank have already agreed to issue RuPay debit cards. At least 10 leading banks are expected to launch RuPay debit cards in a few months.
N. Sheshadri, executive director, Bank of India, says, “we are building the infrastructure and customers will have one more option to choose from, with RuPay.” The RuPay card could be used for online transactions by June and will involve a two-factor authentication process.
“NPCI is recommending that banks should issue RuPay cards for its new customers and cards that come for renewal. We are not advocating that banks should change existing cards to RuPay. If banks decide to do so, banks will have to bear the cost,” Hota says.
But if an existing customer wants to shift from Visa or MasterCard to RuPay, banks will be able to do so. RuPay debit card is expected to be ready for international use by January 2013. NPCI has no plans to enter the credit card market in the next three years.

What will banks get?

“Banks would get simplified fee structure with just three-four types of service charges,” Hota says. In addition, since NPCI will not have a minimum transaction volume clause, even medium to small banks such as cooperative banks would be able to offer its customers this card payment system. Moreover, since NPCI would be using a rack rate charge, there would be transparency in charges. “The charges for RuPay will be substantially lower than its competitors,” Hota says. “We would charge around one-third less than others. Which means when others charge Rs. 100, we would charge Rs. 70-75. We have decided on charges but talks are still on. However, we will definitely be a low cost provider.” On average banks pay around Rs. 300 crore per year to Visa and Mastercard for processing all debit and credit card payments.

Thursday, February 2, 2012

RuPay may Open the Gateway to Inclusion

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A few years ago, an arm of the Reserve Bank of India had launched the inter-bank ATM switch, a device that allows automated teller machines to talk to each other. This prompted the RBI to waive off an additional transaction fee that debit card holders incurred on using ATMs of other banks. The move, which initially faced the flak of the banking industry, led to an explosion in ATM usage across the country. Another such flare-up looks imminent with the upcoming launch of RuPay, a domestic payment gateway akin to global networks such as Visa and MasterCards.
Though industry experts are once again skeptical on the government playing the role of a service provider, if the ATM experience is anything to go by, creation of a domestic payment network will widen the role of credit providers, giving a boost to financial inclusion in the country’s vast rural hinterland.
Coming at an opportune time, when electronic payments are being seen as a tool to reach out to the unbanked, the RuPay card system — an initiative of the RBI-promoted National Payments Corporation of India — is creating unease among global card associations as it will reduce overall transaction cost for banks by introducing competition to international card schemes.
Recently, Visa invited some 50 Indian urban co-operative banks to make a presentation on its products with an aim to lure local lenders to join the global payments network. Visa’s efforts to connect with urban cooperative lenders, hitherto not a priority for card associations such as Visa and MasterCard, just five months
ahead of the RuPay launch is being viewed by experts as prompted by fear of impending competition.
Currently, Indian banks pay . 200-300 crore to Visa and MasterCard for processing debit and credit cards. This cost is expected to come down after the launch of RuPay card system, which is likely to charge a lower processing fee. The benefit of a lower fee will be reaped by customers as well to whom the banks pass on the cost.
The RuPay system will also lower the cost of transactions for shops that are reluctant to use the electronic mode of payment on which they
currently lose 1.5% of their margin. “Currently, the merchant fee is significantly high and there is room to bring it down,” says AP Hota, chief executive officer, NPCI. China already has its domestic payment network Union Pay, a benchmark against which RuPay may be compared. Union Pay has 200 member banks, including 30 outside China, and is accepted in 104 countries. The European Union has also been talking about a region-wide payments network.
The RuPay system also aims to build an environment in which payment information remains within the country. “Why should the transaction go international and expose itself to various risks,” says Hota.
Highlighting the high cost of creating a payment network, Visa and MasterCard feel that payment networks work better when there are fewer of them.

Ajay Banga, chief executive officer, MasterCard, in his maiden visit to India, after taking charge, pointed out that the launch of a local card system will not dilute the relevance of global card networks. Several countries where domestic proprietary networks were set up had turned to MasterCard to ensure that banks have the latest technologies, including fraud management, sophisticated scoring, fast transaction approvals, among others, he said. If every country strives to set up its own payment network, it would not only be very expensive, but also lead to systemic inefficiencies, he added. Amex and Visa also feel that they will continue to remain relevant in a market where growth opportunity is immense. Of the total bank consumer transactions in India, less than 5%, or nearly . 1.14 lakh crore, are in the electronic form. While the urban middle class is slowly migrating to electronic payments for bills, millions of man hours are still wasted by people standing in queues.
Uttam Nayak, India head of Visa, says that the country has a long way to go in electronification of payments. “But where I look for answers is in the kind of investments they (NPCI) will bring in. Secondly, they will have to convince customers that it is the most secure, reliable and convenient mode of payment,” he says. 

In the first stage, NPCI has launched the RuPay debit card. The first such card was issued by Gopinath Patil Parsik Janata Sahakari Bank. Although, not a debit card, the RuPay ATM card allows customers of rural banks and small cooperatives to ac
cess a wider ATM network.
According to Hota of NPCI, which has PSU banks as its stakeholders — the roadmap for RuPay is ready. The company plans to start with a RuPay debit card by the end of this fiscal, which will be accepted in 50,000 domestic merchant establishments. In the initial phase, RuPay will not have an international reach and can be used only for domestic transactions. “But, currently, over 94% of all transactions by Indian cardholders are within India,” says Hota. “However, we will have a leeway from the RBI to talk to international players about the acceptance of this card outside India.” Subsequently, NPCI will roll out credit cards, but that would be three years from now. 


The immediate test for the RuPay payment system will be to strike a chord with rural merchant associations and shops in order to build a payment network where the poorest customer has access to electronic fund transfer.
Also, such a network would require an investment of more than . 1,000 crore by the banking industry without immediate returns. The Unique Identification Authority of India and Indian Banks Association have identified the need for 12-14 lakh micro-ATMs, which are point of sale machines given to business correspondents.
Moreover, an increasing usage of mobile transactions, which enable direct debit through mobile phones, could pose a major challenge to the RuPay.

Wednesday, February 1, 2012

NPCI ties up with BoI for "RuPay" cards

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The card, named “Dhan Aadhar”, has the 12-digit Aadhar number given by the Unique Identification Authority of India, besides the conventional 19-digit number

The indigenous alternative in the payments space to Mastercard and Visa, RuPay, took a big stride with Reserve Bank of India-promoted National Payments Corporation of India (NPCI) launching the card in partnership with Bank of India. Bank of India becomes the fourth partner bank for NPCI. Over the past two months, it has tied up with three regional rural and co-operative banks and distributed 10,000 cards, NPCI's managing director and chief executive AP Hota said.

The card, named "Dhan Aadhar", has the 12-digit Aadhar number given by the Unique Identification Authority of India, besides the conventional 19-digit number. It also carries a photograph of the accountholder, which helps it serve as an ID-card like a passport, Bank of India chairman and managing director Alok Misra said. The Padgha village was chosen for the launch as all the residents in the local gram panchayat have already got Aadhar numbers, he said. Hota said his organisation has already integrated with the servers of the UIDAI which would enable it real time access to cross-verify details like biometrics and photograph.

Through this card, an accountholder can transact by giving thumb impression at a terminal manned by a business correspondent in the rural areas while it can act like a conventional card at an ATM, where the accountholder will have to give a four-digit PIN, he added. When asked if it will also allow transactions at merchant outlets and work like a debit card, Hota replied in the negative. The NPCI would be required to do more integration and call for more regulatory clarity to do so, he said.