The role of POS expansion in the vision of financial inclusion

By Deepak Chandnani The vision of financial inclusion in India is a much-hailed one. Over 180 million debit cards were issued in a year, all backed by the domestic scheme RuPay. More than 21 crore Jan Dhan accounts have been opened with over Rs. 33 crore worth in deposits. There is a renewed interest in developing the grassroots, empowering them with aids and tools to include them in the mainstream financial system. Recent announcements by the government on POS (point of sale) expansion and incentivizing card payments show that it means business. Diving deeper will present a picture that truly reflects the cusp that India stands at. We are a 97% cash economy and almost 100% of cash withdrawals at ATMs come from debit cards. For a country spread wide and with such a dense population, we have only 100,000 bank branches, not easily accessible by the rural populace in close to 600,000 villages. With more than 624 million (and growing) debit cards, cardholders need either an expansive ATM network or more ways to access cash. This calls for a massive lift to the payment infrastructure that can be achieved by and will benefit all players. POS terminals can then play a major role in furthering the cause of financial inclusion. India has 15 million merchants and a little over 1.2 million terminals, which is a large gap to be filled. We have a high cash-to-GDP ratio of 12%, compared to developed countries, at less than 5%. The government announced last year that it aims to increase the POS footprint to 500,000 in 2 years. More recently, the RBI indicated that India would need to set up close to two crore POS devices in the country to create a card acceptance infrastructure equal in size to other BRIC countries. Even Europe has 787,000 POS terminals at 307,000 retail locations. Clearly, the infrastructure needs to be ramped up by leaps and bounds. Also, it needs to stretch beyond terminals and look at mobile payments to drive financial inclusion. Today POS machines accept different financial instruments, primarily debit and credit cards and now wallets. Wallets themselves are seeing high adoption mainly for spending and domestic remittances. Wallets and linked accounts get funded through remittances and direct benefit transfers (DBTs). These accounts come with debit cards which are used at POS terminals for purchases and cash withdrawals. Considering debit cards, POS and wallets, the financial inclusion angle is well-rounded with terminals acting as a robust channel for cards and wallets. It costs Rs. 5,000-Rs. 10,000 to deploy a POS terminal and Rs. 300,000-Rs. 500,000 for an ATM. Also the former has a smaller footprint and more utility than an ATM. It is naturally the less expensive alternative for proliferation of digital payments and financial inclusion. POS machines can use different types of connectivity – landlines, mobile lines and the internet, making them ubiquitous. They accept plastic cards as well as virtual instruments like wallets and other prepaid instruments. Also in the next 3-5 years, there will be over 1 billion mobile connections, building a strong case for driving payments through mobile phones and new payment systems like mobile POS, card on delivery and NFC payments. POS terminals are an essential part of the financial inclusion drive and will find a lot of takers. Companies have always aimed for the pot of gold at the bottom of the pyramid but struggle to develop a profitable business model for it. The increase in POS terminals and their utilities, combined with mobile POS and more new age payment mechanisms can help develop sustainable models and may well make the financial inclusion dream true sooner than expected. The author is CEO of Worldline South Asia and Middle East.