RuPay cards, launched in 2012 by National Payments Corporation of India (NPCI), have grown exponentially led by the Pradhan Mantri Jan Dhan Yojana, and now make up over 38% of the total issued 645 million debit cards in India. Cost effectiveness compared to peers, push from public sector banks and growing acceptance across merchant platforms (both online and offline) are the driving factors for RuPay’s growth from 17 million in financial year (FY) 2014 to nearly 247 million by January 2016. This is likely to increase due to launch of a marketing and promotion campaign to create a strong RuPay brand among high spending urban consumers, roll-out of RuPay credit card by September 2016, and bulk issuing opportunity by partnering with the incoming 11 payments and eight small finance banks.
However, for the month of February 2016, RuPay’s market share by number of transactions is only 20.4% on ATM transactions and 4.1% on PoS transactions.
Market potential
India remains a potentially large market for electronic payments, but a strong push to expand acceptance infrastructure is needed. While the use of electronic channels for accessing banking and payment services is on the rise, India is still a cash intensive economy with cash-to-GDP (gross domestic product) ratio of over 12%. As per various estimates 95% of consumer transactions (volumes) and 65% (value) in India are carried out in cash. This compares with 40-50% (volumes) and 10-20% (value) for advanced economies. Though there is significant increase in electronic transactions, the growth is not uniform across all segments of electronic payments nor is it visible at all locations across the country. Particularly, in the context of cards, while the card base is increasing rapidly, activation or usage rates are quite low, especially for purchase of goods and services. Card usage at ATMs, on the other hand, is high.
The Reserve Bank of India (RBI) and government of India are working on various initiatives to offer significant growth potential for the card industry in India.
RBI released a concept paper in March 2016 to improve acceptance infrastructure in the economy. It is also mulling setting up an acceptance development fund, policy reform to mandate card issuers to set up point of sale (PoS) terminals as per their market share, and rationalisation of merchant discount rates (MDRs).
The government announced waiver on convenience charges, surcharge and service charge on digital payments by government departments and organisations.
Card usage growing
Cards business in India is witnessing consistent double-digit growth in both value and volume of transactions. Within cards, credit cards constitute less than 4% of total issued cards, but still make up for nearly 40% of total PoS transactions in the economy and account for almost 60% of total value of card based PoS transactions.
Surprisingly, debit cards have not had a significant dip in average ticket size (ATS) on PoS and ATM even after the big increase in number of cards on account of PMJDY. Amidst growing use of non-card electronic payments (such as digital wallets), both credit and debit cards have managed to post robust growth due to strategic integration with established online companies and continuous product innovation. Considering the size of the untapped market and low PoS penetration in tier III and tier IV towns, cards business can sustain the current growth levels. India’s leading e-commerce companies get more than half of their sales from tier II and tier III cities as reported by Amazon India and Snapdeal. Lower card usage ex-ATM due to lack of adequate physical network has been addressed by smartphones and Internet penetration.
Edited excerpts from RuPay—Driving card penetration in India, by JM Financial.
