Thursday, February 27, 2014

Primary agri co-op societies to operate RuPay card in Dakshina Kannada






 Primary agricultural cooperative societies (PACS) that form the base of the cooperative credit structure are now set to play a major role in financial inclusion, as the South Canara District Central Cooperative (SCDCC) Bank has introduced the facility of RuPay Kisan Credit Card and RuPay Debit Card for them. 


While SCDCC Bank offers the RuPay card facility, around 600 point-of-sale (POS) instruments in PACS and their branches help transact the RuPay card. 

RuPay is a domestic card scheme launched by National Payments Corporation of India. It enables electronic payments at banks and financial institutions in the country. VISA and MasterCard are the foreign payment gateways 

Launching RuPay card facility here, MN Rajendra Kumar, President of SCDCC Bank, claimed that his bank is the first district central cooperative bank to introduce the facility of RuPay cards to PACS. (PACS, numbering 166, are affiliated to SCDCC Bank) 

GR Chintala, Chief General Manager of Nabard, Bangalore, told Business Line that Raigad Central Cooperative Bank in Maharashtra has already issued RuPay kisan credit card. 

He said, probably, SCDCC Bank is the first one where even PACS were taken on board. In Raigad, the accounts of PACS were shifted to the district central cooperative bank. 

In the case of SCDCC Bank, the identity of PACS was retained. The transactions done by PACS are reflected in the books of central cooperative bank. 

Nabard has extended ₹1.46 crore for infrastructure such as RuPay cards, point-of-sales terminals (which are used for swiping cards to do transactions), etc. 

Rajendra Kumar said that all the 166 PACS and their branches will be brought under CBS (core-banking solution) network by the end of December. SCDCC Bank, which has 63 branches, implemented the CBS in 2012. 

Explaining the benefits of RuPay cards to customers, Chintala said apart from RuPay there are two other foreign payment gateways. Now whatever transactions the customers do, the foreign payment gateways debit around Rs 6 per transaction. A lot of money is going out of the country through this.
In the case of RuPay, around 40 paisa is charged per transaction, and the money is retained in India, he said. 

Rajendra Kumar said that the customers of SCDCC Bank and PACS, who have RuPay card, can use it for transactions in any part of the country.

Monday, February 17, 2014

Can Aadhaar survive without govt backing? Experts discuss

The key question is, if the next government were not actively back Aadhar, has the system created enough mass of benefits for state governments, banks, and the lay citizen to want the scheme to continue?

The unique identity or the Aadhar was one of the high profile projects of the UPA government. By roping in India's smartest technocrat, Aadhar was the UPA's way of using cutting edge technology to transfer benefits in a corruption free manner. But, after five years of backing, last week the government put on hold its program of paying cash on the basis of Aadhar identity to those entitled to subsidised LPG gas cylinders. LPG was the only instance where Aadhar was used to transfer cash instead of subsidies on a national scale and this discontinuation is a big setback to Aadhar.

But, there are bigger dangers bedevilling Aadhar. The Supreme Court has said Aadhar identity cannot be mandatory to get government benefits. The government in the remaining two weeks won't be able to get a law to mandate Aadhar and worse, the BJP has been saying it prefers the national population register to transfer benefits than Aadhar . The key question is, if the next government were not actively back Aadhar, has the system created enough mass of benefits for state governments, banks, and the lay citizen to want the scheme to continue.

In an interview with CNBC-TV18’s Latha Venkatesh, Sanjay Jaju, IT Secretary of Andhra Pradesh, M Balachandran, Chairman of National Payments Corporation, a company that ensures cheaper payment systems between banks and Govindraj Etiraj, former editor of CNBC-TV18, who has served one year as a volunteer in the UIDAI, share their views on the future of Aadhar.

Below is the verbatim transcript of their interview with CNBC-TV18's Latha Venkatesh
Q: As a leading bureaucrat who has used Aadhar in your state just tell us to what extent is Aadhar important for Andhra Pradesh government to transfer benefits?
Jaju: Andhra Pradesh is one state which has actually completed the enrolment for the entire population. More than eight crore Aadhar numbers have been generated for our state and rest of the numbers are in the pipeline. We have also setup permanent enrolment centers for residents to come and update their Aadhar status or for the residual population to get themselves enrolled.

We are the first state also to start the seeding of various beneficiary databases with Aadhar numbers and we were also the first state possibly to have started the direct benefit transfer (DBT), especially with the LPG, NREGA wages and pensions. We had started to make use of Aadhar as a base for DBT. There were challenges, but I am sure this holds a huge potential and definitely has a future for the country.

Q: To what extent do you use Aadhar?
Balachandran: The day Aadhar became an identity kind of thing, the thought process went to the extent that why not it be linked to the bank accounts, so that any kind of payments that could be made from any source more particularly from government\\'s side could be routed through that number with that as an identification. As far as National Payments Corporation of India (NPCI) is concerned, we are leveraging our national financial switch for routing all the payments which have Aadhar number as an identity. That presupposes seeding of Aadhar numbers in the bank accounts. Today we have about 268 banks wherein this seeding has taken place. We started with a pilot project in Jharkhand in January 2013 and now it has become operational from June 2013.

Q: Approximately how much money or how many transactions? Give me a number as to how many transactions are Aadhar based?
Balachandran: Right now we have about 60 million accounts which have been linked to Aadhar. We have an Aadhar payment bridge as a kind of channel for routing these transactions. Roughly around Rs 2,700 crore have so far been channelized. Every month, in fact in December we had around 11 million transactions routed and January it had gone up to 15 million. What started as a DBT for routing the subsidy for LPG now got expanded to other benefits as well like pension payments, student stipends, so on so forth.

Q: You were telling that it is also getting used by banks for banking correspondence to ensure financial linkages.
Balachandran: Yes, that is another module that we have which is known as Aadhar enabled payment system wherein once the money gets into the accounts of the people either through Aadhar payment bridge or through any other means, now we would like to see that people are able to draw that money through the banking correspondence. For that, we have RuPay as a debit card or ATM card which could be used and the beneficiaries or the account holders go to the banking correspondence.

Q: How widespread is it?
Balachandran: Now around 26 banks have already got themselves enrolled. It is picking up. These people go to the banking correspondence. Use their biometric identification process. Get their account validated through Aadhar number and get the money transferred, that is drawn and even if they have got amounts to be deposited the same system works. Aadhar now as a number identification is used by NPCI.

Q: I get your point that you have been able to have Rs 2,700 crore transferred by the government to intended beneficiaries.
Balachandran: 45 central government and state government departments. 45 departments in the center have been using these kind of accounts.

Q: I want the bigger picture. Where else have you seen the spread of Aadhar?
Etiraj: Aadhar was created for two reasons - one was to give every Indian resident a unique identity, so that is the primary purpose. Of course this identity would be truly portable and mobile which no identity has ever been in this country. Every identity in this country has been linked to either a benefit or an entitlement. Think of the US social security system. It is the only number that you can identify someone with, but it is a benefit or an entitlement that is social security. Similarly in India you have PAN numbers, you have driving licenses, you may have a pension numbers, but it is all a number which is connected to some entitlement or a benefit, so that is the fundamental difference, that this is a unique identity which does not have any property or value attached to it.

The second objective was to make this number truly usable and relevant to people in their daily lives, how do you attach some level of functionality to it. That functionality was authentication, i.e. if I go somewhere and if it is attached or gets connected to some service can I authenticate myself? Once you said authentication there were a host of services which was supposed to be for authentication. What you see as DBT is one such authentication application, the way UID defines it and there are many as Mr. Balachandran himself has pointed out. So that is really the background. It could be to get a telecom card, it could be to even open a bank account which has nothing to do with the transaction. So the whole e-KYC product which UID has launched basically allows people to walk into a branch. There are banks like Axis Bank, Oriental Bank of Commerce (OBC), HDFC Bank, they have all started rolling out. You can go to their branch, authenticate yourself with your biometric and then open a bank account. Earlier opening of bank account meant carrying a whole sheet of papers.
Balachandran: KYC has been a big challenge, yes.
Etiraj: There is authentication. Under authentication comes a whole bunch of applications. Some are to do with delivery of subsidies and benefits. Others are to do with banking. There could be a third element to do with education and a whole bunch of other things which still has to be rolled out as I see it.

Q: In your experience to what extent is Aadhar responsible for the DBT not working, because that was the hue and cry which led to the abandonment of Aadhar being used in DBT?
Jaju: We just heard Mr. Balachandran that more than Rs 2,700 crore have actually being transferred so saying that DBT has not worked will also not be accurate, because amounts have gone. This entire process works on seeding Aadhar numbers in beneficiary databases and this job has to be done by the respective department. Once you seed the numbers then you push those records into the banks and then the banks will ultimately generalise it through the NPCI and then finally the amount gets into the bank accounts.

The challenge here has been accurate seeding of Aadhar numbers, which in many cases could not be done and the reason for that possibly was paucity of time. For a project of this nature to rollout you require time, not just to do the seeding, but to verify that the numbers which have been seeded have been done correctly.
We did not allow that time to be given for this particular project. Second aspect is it has to be done step by step. It cannot be done for the whole country in one go, because the nature of Aadhar enrolment also is not uniform across the country. There are states, there are districts where this has made significant progress and there are states and districts where still the number generation is very poor. So if you are planning to roll it out uniformly you will always face challenges in terms of the numbers being generated and the impact of it or the seeding of those numbers in the beneficiary databases.

Q: You are establishing that clearly it is not Aadhar to be blamed, but probably inaccurate seeding and not enough backing by the respective governments which might have led in several states for the system to not work.
Etiraj: LPG is a very interesting case. LPG was always a very good candidate because it was the oil companies who are equally interested in getting something like this going because they wanted to save on subsidies, so they were almost desperate to add this on.

Q: The sources close to the top management of oil companies said that when they first shared their databases they could read out purely through de-duplication some 10-15 percent of cards. So that was their biggest saving. In their Aadhar related areas if they looked at it where they could delete fake cards and ghost cards, the benefit was more like 2-3 percent, so while they were happy with it they thought that with Aadhar going away they were not really weeping that they are going to lose a lot of money they could have otherwise said.
Jaju: What I was trying to say it is not about the backing. One question you asked was, will a program like Aadhar survive as a voluntary exercise? To my mind it won’t. 

Q:
Yours was the happy case where both the central government and the state government were backing the project. What happens if that backing is removed? Will it be a lot of money wasted? How do you see it progressing?
Jaju: Yes, it would be. A project of this nature would definitely require the backing of the state, because here you are talking in terms of improving the targeting of the various welfare programs that the central government or the state government runs and you are trying to make use of Aadhar as an identity. Seed Aadhar into the beneficiary databases and use authentication mechanisms before you deliver the benefits to the targeted beneficiaries. So to my mind if you look at the post-Aadhar world you have two subsystems. First is the state subsystem, the government subsystem which is around the welfare programs that government run. Unless and until the state backs and not just back, they will have to very aggressively push Aadhar into the beneficiary databases and make this as the sole identifier and authenticate beneficiaries before the benefits are given.

Q: Your sense is the administrative officers will see the advantage of the program, they will back it. Do you think they will want to convince the new political masters of continuing, persisting with it?
Jaju: Obviously yes. We have reached a critical mass. We have generated more than 55 crore Aadhar numbers in the country.
Etiraj: When you say the colour of the next government and that determining whether Aadhar will continue there is no empirical evidence to show that any of the opposition government, if BJP is in the opposition for instance has really gone against it. You can see the top states - Maharashtra, Andhra Pradesh, Tamil Nadu, Madhya Pradesh, Karnataka, Rajasthan, West Bengal, they include ruling government and non-ruling government. The point being that there are enough buyers for this in other party ruled governments or states as well and therefore the chances of this going are as good. Having said that, any government can junk any project. We have seen that before and that can happen again if someone so decides, but I think the merits of this in terms of this achieving what it was set out to achieve are pretty clear.

Q: My suspicion is that the banking system or the financial inclusion angle will want Aadhar to continue. What is your sense?
Balachandran: Absolutely. There are two things. One is Aadhar being used as an identification first…

Q: I am asking you to imagine a time when the government may not actively push it. In that case do you think there is enough steam in the banking system to want it?
Balachandran: That is what I have to say that going beyond the DBT this is an identification process where people would like to indentify themselves with this particular number. It could be for opening of a bank account or it could be for drawing of amounts from the bank account or it could be for any kind of KYC process. For instance in NPCI we have initiated e-KYC, that means anybody who has got an Aadhar number can simply step into any bank branch and use that number for getting themselves identified and it is instant. As of now NPCI is providing this service without any fee, otherwise you can imagine how much it becomes a hurdle for anybody to open an account. It is not only for bank accounts and it is being used for all other financial sector transactions.
Etiraj: I think we have to come back to the fundamental point, why was this created? Like I said there were twin objectives. First was to provide every Indian resident a unique identity. The other thing is there is a study which is being done by two professors, one from Stern which says that at least 25 percent of the identities that are being created due to the Aadhar exercise are actually first time IDs. One of the biggest problems in this country is that people do not have an ID or surely do not have a portable ID. If I have an ID which associates me with a certain function or a benefit in the state of Maharashtra it is useless when I go even two districts away, leave alone leaving the state. So that was the fundamental problem. If everyone agrees that this is something that is asset to the future residents of this country then this is something that surely will work.
Latha: There has been opposition to it. One from those who believe that the privacy is violated. There is opposition from those who believe that there is no security of data as well. So these could be advanced as well. nor has Aadhar ever been espoused as an instrument to control corruption. For instance, NREGS payments. NREGS payments can always be leaked out, siphoned out if there is a collusion between the administrative officials.
Etiraj: Since you mentioned NREGS 2.5 million transactions a month are happening to beneficiaries of NREGA. We did not touch NREGA so far, but 2.5 million transactions, in the context of India it is a very small number, but in the context of Aadhar it is reasonable.

Q: What is your hunch? Do you think there is enough private sector use for it or private sector has seen enough use for it to want it to continue?
Etiraj: I look at the number. 570 million Aadhars issued of an active population maybe of let us say 750-800 million assuming the rest are all children and so on who may not use it for a while. I think that is sufficient momentum for demand and push both. Mr. Balachandran spoke about the demand side and my sense is that the demand side will keep increasing. Sanjay Jaju also spoke about the demand side, my sense is that will keep increasing because people like him want to use this to clean up their databases and make their states more economically sound.
Latha: In terms of use, for instance in Chhattisgarh there is enough evidence that smart cards were used in several districts and those have been portable. Wherever there is a POS machine the smart cards could provide grains and they were a cheaper option.
Etiraj: Not necessarily, but that is a different argument. I think smart can never travel out. That is why said go back to the original proposition, national identity that is truly portable and dynamic. None of these things, whether it is a smart card wherever it is is truly portable in that sense except maybe in a limited area.

Q: Do you think this will survive without if the government made it voluntary and not mandatory?
Balachandran: It can still survive because there are multiple uses and people would love to have an Aadhar card.

Q: What is your sense? Do you think state governments will go ahead with it because enough benefit has been seen?
Jaju: I think it has achieved the critical mass and it will be very difficult to junk it by any government. It would definitely require the backing of the government to flourish although it may survive or it may limp, but we need this to flourish, because this has the key to the better targeting of the benefits and to my mind it also allows us to clean up our databases.
Latha: I take your point that it is likely that even without too much government backing, even without a future government saying it is mandatory perhaps Aadhar has come to stay.
Etiraj: As a journalist let me tell you, the beauty of the government project is, one, they can get junked. Other is once you have got something going it is very difficult to stop it. There are lot of things which technically should not be there, but are still running. In this case there is greater agreement that it should be running at least amongst the few of us here as opposed to not running.

Sunday, February 9, 2014

RuPay Cards to reach 25 m

The National Payment Corporation (NPCI) plans to almost double the number of RuPay Cards, the homegrown rival to Visa and MasterCard, to 25 million over the next two months.

“We have so far issued 14 million RuPay cards, and this will touch 25 million by the end of March,” NPCI Managing Director and Chief Executive Abhay P Hota said.  NPCI is the nodal agency under the Reserve Bank that manages the national payment switch and has developed the RuPay Cards.

RuPay Card, Reserve Bank and domestic lenders-promoted NPCI’s answer to Visa and the MasterCards which control the domestic plastic money market, was launched in April 2012.

It has seen as many as 210 banks, including all public sector banks and some of the leading private sector ones, issuing these domestic debit cards, Hota said. He agreed, however, that most RuPay customers are urban cooperative banks and regional rural banks.

He also said Citi and HSBC will join RuPay system by July. “Today our cards are accepted on all ATMs (1.45 lakh), 8.4 lakh merchant terminals and 70 per cent of the e-commerce merchants,” he said.

About the quick acceptance, he said, for all the stakeholders it makes immense business sense as NPCI charges just 90 paise as the fee per transaction — 60 paise from the merchant and 30 paise from the issuing bank — with the same kind of security; the same on a Visa or MasterCard is as high as Rs 4.

“Our switching fee is only 60 paise for acquiring banks and 30 paise for issuing banks per transaction,” Hota said. On profitability, Hota said, “We will break even by the end of the seventh year (2018-19).”

Hota ruled out entering credit cards business as of now but was confident of traction in the international debit cards. Till now, Bank of Baroda, Central Bank of India and Saraswat Bank have issued RuPay international debit cards, being offered with the California-based Discover Financial Services. 

IDBI Bank joins the credit card bandwagon

Nearly nine years after becoming a full-fledged commercial bank, IDBI Bank has decided to issue credit cards to its customers. 

The Mumbai-headquartered bank intends to issue around five lakh cards in three years — one lakh in the first year and two lakh cards each in the following two years. 

The public sector bank, which currently has a base of more than 10 million customers, will be issuing EMV (Europay, MasterCard and Visa) chip cards with magnetic stripes. 

EMV is a global security standard for microprocessor chip card technology. This ensures that the credit card is not only accepted anywhere in the world but is also better protected against fraudulent activities. 

Since many merchant establishments in the country still have credit card payment infrastructure (terminals) that accept cards with magnetic stripe, the bank has decided to issue EMV cards with magnetic stripe.
The category of credit cards that the bank plans to issue are: Platinum, Signature and Corporate. 

Service provider

For foraying into the credit cards space, IDBI Bank is planning to engage the services of a third party service (TPS) provider for providing end-to-end solutions for credit card issuance under the outsourced model. The TPS provider, among others, will undertake operational activities relating to account updation, demographic changes, payment instructions, recurrent payment instructions and balance transfer request received through physical change request form/phone banking/Net banking. 

For now, IDBI Bank will be issuing credit cards on Visa and MasterCard platforms. The main business of Visa Inc and MasterCard Worldwide is to facilitate electronic funds transfer — they process payments between the banks of merchants and the card issuing banks of the purchasers. 

Once Rupay (the home-grown rival of Visa and MasterCard) launches the credit card, the bank will issue the cards in association with Rupay too. Currently, IDBI Bank’s debit card portfolio comprises Rupay debit cards also. 

As on November-end 2013, there were 18.77 million credit cards outstanding in the country. The total value of loans outstanding against these cards stood at Rs. 12,789 crore.

Visa Maintains Growth Despite FX Headwinds And Tepid U.S. Volumes

Despite FX headwinds, Visa (NYSE:V) reported strong results for the first fiscal quarter of 2013 with a 9% increase in net income and an 11% growth in revenues. The total nominal payments volume growth rate fell from 9.6% in the September quarter to 8.2%. This can largely be attributed to currency fluctuations, as the U.S. dollar strengthened against currencies in Asia, Latin America and Canada, and the growth rates for these regions fell. In Asia, which accounts for more than 40% of volume outside the U.S., the nominal growth rate was 7.9%, despite a 13.8% increase on a constant dollar basis. Visa Europe is a wholly separate company to Visa Inc. and the latter did not benefit from the strengthening of the Euro during the quarter. Going forward, the company expects a negative impact of 2% on volume growth, and has issued an FX-adjusted guidance of 8% to 11% growth through the coming quarters.

The worrying sign for Visa was a 2% decline in the constant dollar growth rate, which was still healthy at 11.4% but lower than prior quarters. Despite a 3.8% increase in holiday season retail sales that allowed competitor American Express (NYSE:AXP) to maintain a 9% growth rate in card-member spending, Visa observed a 2% decline in its U.S. volume growth rate. The rate fell to from 10.3% during the September quarter to 8.3%. This might have been due to adverse weather conditions in the country, which led to a 15% decline in customer traffic through November and December.  Visa was not able to fully capitalize on the e-commerce phenomenon, which saw a 9.3% increase in total online sales through the December quarter. The company’s payment volume per transaction fell from $58 in the September quarter to $51 during the last quarter. Our price estimate of $191 for Visa’s stock implies a discount of 15% to the current market price.

U.S. Growth Rate Dependent On Consumer Sentiments
Electronic payment penetration in the U.S. is quite high; more than 60% of personal consumption expenditures (PCE) in the country are through non-cash transactions. This indicates that future growth won’t come from increased penetration but is dependent on consumer sentiments. Trends in this regards are positive. Recent figures released by the U.S. Department of Commerce show that Americans are now more inclined to spend; personal saving as a percentage of disposable personal income has gone down from 6.6% in the fourth quarter of 2012 to 4.9%.  Economic improvements in the country saw the unemployment level fall below 7% in December while wages and salaries increased 4% over the prior year.
Visa is the dominant card processing company in the U.S.; the company has a high level of merchant acceptance in the country, with over 88 acceptance locations per 1,000 urban households, and accounts for 22% of the personal consumption expenditures (PCE) in the country.   ((Personal Consumption Expenditures, U.S. Department of Commerce: Bureau of Economic Analysis)) We believe that Visa can maintain a stable growth rate of around 8% to 9% in the coming years in the U.S.

Expansion In Emerging Markets Will Lead To Higher Growth
The expansion of financial services in emerging markets in Asia and Latin America will allow Visa to achieve higher penetration in some key countries. More than 60% of transaction in countries like India, Mexico, Brazil, Russia, Indonesia, South Africa and UAE are still cash-based, but banks are rapidly expanding their network and issuing cards bearing the Visa logo. PCE growth rate has been around 10% in these countries for the last 4 years, underlining the potential. We believe that international expansion might be hindered by currency fluctuations in the short term, but long term prospects are good for Visa. During the December quarter, the company reported a 13.8% increase in Asia Pacific payments volume on a constant dollar basis but the nominal growth was 7.9%. In Latin America, the growth rate was 16% on a constant dollar basis but just 5.6% on a nominal basis.

Visa has around 700 million cards in Asia, almost the same number as in the U.S. However, the average number of transactions per card is just 5 per quarter as opposed to 17 for the U.S. Since the total population of the Asia-Pacific region is much higher than the U.S., we expect the number of cards to increase at a high rate in the coming years. Increase penetration and the growth of the e-commerce and m-commerce phenomenon will also lead to greater use of these cards in the region.