Cashless Payment System in India - A roadmap has been marvelous. Discussions among payments professionals [in India] have invariably gravitated to debating either suggestions in the report or the broad press coverage the report received. For sure, the report has helped bring the spotlight to the niche area of electronic payments and its role in an emerging market.
While Prof Das, the author of the report, has been understandably busy, he took some time off to talk with Mr Manju Murthy. Please find below the excerpts of the conversation:
MM: Why did you feel there was need for this report?
AD: The card based retail payments should have been the run-of-the-mill standard by now. Why is not? As common consumers, all of us must have encountered situations where, though being within reach of a card payment (having a debit card, if not a credit card), one finds the merchant not accepting cards or merchant offering discount on cash payments or merchant imposing a surcharge on a card payment. With advancements in electronic payments how can cash payments be preferred and cheaper than debit card payments. So, there are barriers in our path! We need to see, understand and then implement ways of moving towards a cashless retail payment system... Hence the Report.
MM: The average transaction size/value at a small retailer is about INR 200, and rarely goes over INR 500. Considering this, a MDR of 0.2% is only INR0.40 which seems low to account for fixed costs. Consequently, would it be appropriate to propose a fixed MDR (for e.g., INR 5)?
AD: The value of 0.2% and the cap of INR 20 can be sharpened further based on the exact distribution of the ticket amounts for debit card transactions at POS. Bank's earnings of INR 20 for larger tickets compensates for the shortfall in revenue generated from small ticket debit card transactions. A fixed MDR of INR 5 is too high. It would discourage merchants having smaller ticket size to accept cards.
MM: Presently, merchants pay a monthly subscription fee (about INR 100-250) if the merchant does not meet the agreed upon monthly minimum transaction volume (e.g., INR 25K). Do you see the subscription fee changing?
AD: It should not
MM: Do you see the minimum monthly transaction volume changing?
MM: What might such a [average] number be?
AD: I would not know
MM: The report seems to be silent on the On-Us/Off-Us aspect of the industry. Is there a reason?
AD: On-Us/Off-Us has not been distinguished in the report. It is definitely cheaper to have an On-Us transaction. One saves on the switch charges. The card service provider has an incentive to ensure more of On-Us transactions, and would have the liberty to encourage more of such transactions by passing some component of his savings (on switching expenses) to the merchant.
MM: The timeline suggested for action are aggressive [to a conservative industry/regulator]. Who might be the co-travelers who could champion these recommendations?
AD: One needs to be proactive in these matters. The report only provides a suggestion on the timeline.
MM: Thanks a lot for taking the time to share your thoughts in this forum.
Note: Please send in any questions you may have for Prof Das. We'll work on getting them answered.
You can find the analysis of the original report here.