2,00,000

Number of PoS terminals added between April and September 2018

and benefits for consumers and merchants is a major challenge. “With the December 2018 deadline of having recording magnetic strip with EMV cards, and the communication to banks from the finance ministry to start issuing contactless payment cards, it is a good time for consumers to ask their issuing banks for new contactless cards,” says Paul.

PLAYING CATCH- UP

Various digital payment methods are in the fray, but their success will also depend on acceptability among merchants. The convenience has to include not just customers, but the sellers too, and it has to extend to the physical process of getting a Point of Sale (PoS) terminal to reconciliation and payment from the card issuing banks. In this regard, the first and the most visible element is the PoS terminal.

An important part of the digital payment systems, this is a computerised replacement for cash register where customers can transact via debit and credit cards. A customer needs to enter their security pin in order to execute a transaction using a PoS terminal. All accounts are settled when the merchant makes the batch settlement at the end of the day and the respective amount, after deducting bank charges, is credited to the merchant’s account.

PoS terminal companies earn revenues via three channels – initial device set up fees, Merchant Discount Rate (MDR) and per month rental income (usually ` 100-350 for mPoS devices and ` 400-750 for traditional PoS devices). MDR paid by the merchant is divided among the card issuer bank, the acquirer (the one who installs the PoS) and the switch network. The issuer bank gets the maximum share of MDR.

India’s PoS terminal market is growing fast thanks to an increasing penetration of credit and debit cards, coupled with rising e- commerce growth in India. Acquiring touchpoints, especially PoS terminals, have gone from 1.48 million in September 2016 to 3.31 million by June 2018. “Both e- commerce (or online) and physical merchants (offline) are showing an encouraging growth. There are close to 4 million acceptance points for card payments in India now including PoS terminals, e- commerce merchants and Bharat QR scan and pay locations,” says Paul of Visa.

Additionally, changing customer preferences towards high volume of cashless transactions has been driving the demand for PoS terminal devices in India. Retail merchants are making attempts to enhance customer experience by offering flexible payment solutions with advanced payment options at the PoS terminal.

The increasing use of smartphones and tablets in India is further expected to drive up the demand for mPoS solutions, especially in the retail sector. “While merchants who were already accepting digital payments have been keen to accept newer modes of acceptance, the encouraging trend is that merchants who have hitherto been in the 100 per cent cash ecosystem are eagerly dipping their feet in the digital payments world,” says Chandnani.

Merchants who want to start accepting e-commerce transactions have to have their website or mobile app connected to a payment gateway. The payment gateway enables customers to enter their payment details and pay for goods or services using credit or debit cards, bank account, UPI, wallets, among others. Like a PoS terminal, this payment gateway is connected to a

“WHILE CASH AND DIGITAL CAN CO- EXIST AND THRIVE, DIGITAL PAYMENTS HAVE BEEN GROWING AT A FASTER CLIP OVER THE LAST FEW YEARS” Ravi B. Goyal CMD, AGS Transact Technologies

financial switch, which sends the transactions to card issuers or banks or other networks to authenticate the transaction. “One of the crucial pillars that will decide the success or failure of digital payments drive is investments in the acceptance infrastructure,” says Paul. The infrastructure needed at the retail level could be in the form of a QR on a mobile phone app or a physical decal or a PoS terminal. In the case of a PoS terminal, a stable landline connection or a stable GPRS connection is needed.

Despite the rapid pace of innovation in solutions, the growth in acceptance at the merchant level has been modest over the past few years. Rajeev Agarwal, CEO at Innoviti Payment Solutions, says, “Penetration of digital payments is as high as 60 per cent in the top 60 cities. But, this number starts dropping after the top 200 cities. In cities with a population of 400,000-500,000, the penetration drops down to 10-15 per cent. Even in metros, the penetration is fragmented and drops to 30-35 per cent at the fringe of the metros.” Agarwal lists out a few factors that impact the adoption of digital payments in the country. These include anxiety among many merchants as well as consumers as digital is not tangible and hence is unable to offer the same comfort as cash. There is also little obvious benefit for merchants operating outside of the metros – local merchants operating in particular catchment areas might not see any additional benefits of using digital modes of payment if it is unlikely to have a significant impact on their sales. On the infrastructure side, innovations have to include seamless and efficient services and support.

For merchants the switchover will pick up momentum only when customers start demanding acceptance of digital payments. “Smart PoS that can accept all channels of payment will find favour with merchants. Additionally, merchants are also looking for infrastructure that can help in reconciliation, settlement and dispute resolution,” says Goyal. Once the merchant joins in, there should be efficient infrastructure providing support when the merchant is ordering a machine, and the on-boarding and installation has to be simple. According to Goyal, backend technology, especially related to fraud management, is as important as frontend technology and should be enhanced.

Innovations in acceptance ecosystem are needed for digital payments to graduate to the next level.

“ONE OF THE CRUCIAL PILLARS THAT WILL DECIDE THE SUCCESS OR FAILURE OF DIGITAL PAYMENTS DRIVE IS INVESTMENTS IN THE ACCEPTANCE INFRASTRUCTURE” Shailesh Paul Vice President and Head, Merchant Sales & Solutions, India and South Asia, Visa