Monday, March 12, 2012

Discover Financial Agrees To Alliance With Payments Group In India


--Discover to process transactions made with India's RuPay cards
--Discover and Diner's Club cards will be able to be used at ATMs and merchant terminals in India
--Discover is trying to grow its international footprint
NEW YORK -(Dow Jones)- Discover Financial Services (DFS) will process transactions made by cards on India's RuPay payment network under a deal aimed at bolstering Discover's international footprint.
The Riverwoods, Ill.-based credit-card company said Wednesday its alliance with the National Payments Corporation of India will also allow its own cardholders to use their cards at ATMs and merchant terminals in India.

The National Payments Corporation of India was established in 2009 to develop a payments card network similar those operated by Visa Inc. (V) and MasterCard Inc. (MA) for India. That network, RuPay, is still being built out.

"By opening up our global payments network to RuPay cardmembers, we are participating in one of the fastest growing countries for payment cards in the world," Diane Offereins, executive vice president and president of payment services at Discover, said in a statement. "Discover and Diner's Club cardmembers also will benefit from their ability to more broadly use their cards to access cash or make purchases throughout India."

Discover has had a presence in India, including a deal in which HDFC Bank, an Indian bank, issues Diner's Club cards in the country. Diner's Club is owned by Discover.

Discover, like American Express Co. (AXP), typically issues its own credit cards and operates a payments network that processes transactions, unlike Visa and MasterCard, which only process transactions. Higher transaction volume helps boost their revenue.

Discover has a smaller acceptance footprint internationally than does American Express, Visa and MasterCard, though it has been working to change that.

"We're working aggressively to make sure we have strong franchises in India and in China to make sure we can capture" growth in those markets, Roger Hochschild, president and chief operating officer of Discover, said at an investor conference last month.

As part of the new agreement, RuPay card transactions made outside India will be processed over Discover as well as Discover's Diner's Club and Pulse ATM networks. The deal will be rolled out in a "phased manner, starting with acceptance of Discover and Diner's Club cards at RuPay ATMs in India, followed by merchant terminals in India.

The deal is a "nice win for Discover," Sanjay Sakhrani, an analyst with Keefe, Bruyette & Woods, wrote in a research note Wednesday. However, the financial benefits of the deal aren't likely to come until the later stages of the rollout, Sakhrani wrote.

Discover's shares are up more than 38% over the last year. Its shares were up 1.4% at $30.34 in recent trading.

Monday, February 13, 2012

NPCI to launch PIN-based debit cards by March

Rupay Card Logo
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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.

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.

Monday, December 5, 2011

Aadhar card may be used to identify telecom customers - Rupay card

Rupay Card Logo
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The Unique Identification Authority of India (UIDAI) plans to allow telecom service providers to use Aadhar cards to verify the identity of cellular phone customers shortly.

"We will soon allow telecom service providers to use the unique identification number to verify identities of their customers. We would like to have proof of concept validation with telecom service providers like Vodafone and Airtel for the same," UIDAI's Chief Product Manager Sanjay Jain said.

Incidentally, the project has been witnessing a backlog due to the huge volume.

"We have been enrolling around one million people a day. Filed enrollments are happening at a slower rate. The backlog is due to infrastructure related issues. But we hope to resolve these as soon as possible," he said.

The authority is keen on authenticating online transactions made through smart phone eventually, though no details were revealed.

"UIDAI is an application platform. Both banks and telecom service providers are welcome to use this platform and build their systems around it," he said.

The authority is also looking at whether it must work with the National Population Register (NPR), which is a project run by the Registrar General of India (RGI).

"We have not decided if we should work with the NPR. We may do it if and when we decide to do so," he said.

Incidentally, the National Payments Corporation of India (NPCI) has been advised to introduce RuPay cards, which compete with VISA and Mastercard, under the Aadhar Enabled Payment System (AEPS). Besides, ATM transactions too would be authenticated by the UIDAI.

UIDAI, along with NPCI, has already piloted Aadhaar- enabled Payment System in Jharkhand, and over 60 banks have registered to be part of this network, sources said.