Govt pushes public banks on RuPay cards, will India's payment network take off?

Your next debit card might be missing the familiar MasterCard and Visa stickers at the bottom and instead have the RuPay logo, if the government has a say in the matter.

_The Economic Times_today reports that the government has ‘urged’ state-owned banks to issue RuPay debit cards to all customers who do not have debit cards and to new customers.

The article states that PSBs won’t really have a choice in the matter and will have to implement the government’s mandate by issuing cards, informing branches to install RuPay POS terminals and submitting semi-annual progress reports to the government.

Launched in May 2014, RuPay is a new payment network developed by the National Payments Corporation of India (NPCI), a not-for-profit company envisioned by the Reserve Bank of India (RBI) and created by the banking industry, covers all the automated teller machines (ATMs) and multiple retail and e-commerce platforms. The NPCI hopes to make RuPay a worthy adversary to international payment networks like MasterCard and Visa.

The genesis of RuPay and the NPCI came from an RBI document released in 2005 that sought toconsolidate and integrate the multiple payment systems into nation-wide uniform and standard business process for all retail payment systems.

These cards are accepted at all ATMs, more than 90 percent of POS terminals and more than 10,000 e-commerce merchants across the country.

All transactions under the RuPay card scheme are processed within the country and the transaction cost is reimbursed in domestic currency, which helps save foreign exchange.

At the time of RuPay’s launch in May,31 scheduled commercial banks based in the public and private sector, 49 regional rural banks and 175 cooperatives had issued over two crore RuPay cards.

But while public banks are pushing the RuPay mandate, it might be a while before private sector banks get on the bandwagon, AP Hota,managing director and chief executive officer of RuPay, told Business Standard last month.

“Many private banks are tied in a long-duration contract with Visa and Mastercard. Until that expires, they will not be able to come out of it. They have taken money from them in advance. If they have a third card base, they will not be able to issue the committed number,” he said.

One of the potential drawbacks of RuPay is that it is not accepted internationally, unlike Master Card and Visa which enjoy global payment networks. To boost RuPay’s international presence, the government has tied up with Discover Financial services but, Hota told BS, commercial rates had not been decided at the time. NPCI is also in talks withJCB of Japan to boost RuPay’s presence in the East.

RBI data indicates debit cards are growing in popularity in India. The volume of credit cards in the country grew a little over seven million from 40.51 million in May 2013 to 47.55 million in May 2014. Compare this to debit cards which grew from 525.35 million to 627.35 million during the same period - a jump of a little over 100 million.

Even in terms of value of transactions debit cards beat credit cards. Debit card transactions grew Rs 278 billion for the period of May 2013-May 2014, while credit card transactions grew only Rs 26.16 billion for the same period. So perhaps the RuPay debit card system will see a positive reception.