Tuesday, October 13, 2009

Indian Payments Card market analysis

In recent times, mention of the Indian economy evokes images of growth, opportunities and a new gold rush. However, when it comes to electronic payments systems, India is yet to break out. Payment card volume in India is a fraction of that of Singapore (KPMG Report). Let's take a look at the 2008-09 (April 08 - March 09) statistics

A few observations on the above stats:
  • Though debit cards have higher circulation (as they double as ATM cards as well), their usage is significantly lower (even by India's standards) [less than 1 transaction per card per year!]
  • Credit card transaction volumes are low ($52 per year per card). Coming out of the 2008 market downturn, credit card companies are flying to quality. They are trimming credit limits, canceling cards with minimal usage... Nothing new to the western world, but a new trend in the wild swinging Indian market.
  • Though the above numbers are small, the market is growing at a CAGR of over 30%. In 2020 the market size will be ... ;-)
Turning our sights to the online commerce world, the stats are similar. Online commerce is trending at about USD 3 billion a year (US market of $300B). Typically, ecommerce is 10-15% of the total retail payments card market. However, you will notice that in the Indian payments card market, the ecommerce market is over 20% the size of the retail market. A phenomenon that can be attributed to the cash-dominant brick-n-mortar retail economy (with a sizable parallel counterpart).

With regard to payment card fraud, I do not have data on fraud rates at brick-n-mortar stores (contribution of relevant data is appreciated). According to Al Cameron, Payments Fraud/Loss Prevention Specialist, online payment fraud rates (Card-Not-Present / CNP fraud) is around 3oo bps (US is at 140 bps, and UK at 100 bps).

Even though the Indian ecommerce market is in its infancy, security concerns during online payments are cited as among the top-5 barriers to faster growth. Regulatory authorities in India (RBI) mandated 2FA (Two factor authentication) for online payments from Aug 1, 2009. Going by UK's experience (where CNP fraud dropped for the first time during the first half of 2009) of CNP fraud reducing due to deployment of 2FA, India might also experience a similar benefit. This could help bring more users to the world of online commerce (grow the pie), as well as, increase the bottom line of online merchants and card issuers.

I have not been able to get any data on the benefits expected by the Indian regulators after the implementation of their mandate. If any of you have access to this data, please do share it. I shall post it here and acknowledge your contribution.


  1. Lalchand, Thanks for your interest in the blog. I am looking at a similar about payment cards in Pakistan. I would appreciate if you could point me to relevant sourcdes (individuals or reports). Thanks, Manju

  2. There was a campaign, to persuade RBI to postpone the laucnch of 2FA, as the industry players, feared a drop in online transactions on launch of 2FA.
    Luckily, RBI did not heed to this campaign, and the 2FA launched as schedule

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