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Online Payments & Transactions – one of my favorite topics. Are the volumes of Internet or Mobile Transactions important – YES!

Internet Businesses will be sustainable in India only when the volumes of online transactions in India go up, which in turn happens only when Internet Banking, Debit Card usage and proliferation of Credit Cards happen.

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Why it is must?

Not just direct eCommerce websites, but Internet Industry will grow along with that. Why I say this  because the cycle goes like:

• Take two of the biggest spenders amongst Internet Industry – Online Travel & Matrimony Services
• To be in business – they need Transactions (Online Bookings & Paid Accounts)
• If consumers don’t transact online, they will not have any revenues
• No revenues – No or lower advertising spends
• They don’t spend – Online Advertising Networks suffer, hence publishers, and hence it affects the complete ecosystem.

In happy happy scenario – when volumes of Online Transactions are higher – you see more Online Travel Bookings, Movie Tickets, eCommerce websites sell products, Consumers opt for Paid accounts on Matrimony Services, Paid Classifieds… and everyone is smiling.

The volume of online transactions will determine how mature the Internet user base in country is. And the fate of Internet Industry lies in hands of Reserve Bank of India by ensuring facilitation of usage credit /debit cards & internet banking facilities by all scheduled banks in India.

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Some Unrelated Linkage:

Major banking websites in India (HDFC, ICICI, Citibank, SBI, Axis Bank) attract over 16.25 Million Unique visitors each month (Source: Vizisense) . That probably will be a small percentage of total bank’s user base, but going by that number means:

• If India has 35 Million Internet users in country- a whopping 46% of internet users frequent bank websites
• It would be still 27% if Internet user base is considered to be 60 Million and yet it is a significant number.
• Every 4th user of Internet is a someway related to bank. This is just considering the top banks in India.

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The Scenario Today:

Unfortunately the credit card subscriber base in India is not so promising at less than 25 Million Cards issued in market and of which estimated 50% are active users.

Positives – Debit Cards growth seem to be promising for as many banks couple the same as Debit-cum-ATM card and have started distributing it to all new accounts. NetBanking user base quoted above could indicate user logins to netbanking (mostly to check balance) and not necessarily online transactions.

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RBI’s Plan of Action should be:

So what is required to be done to create an environment to boost Online Transactions in India:

Curb the loss of opportunity –

• Many banks in India issue Maestro Debit Cards – unfortunately they are not accepted on many payment gateways
• All debit cards are ATM Cards; but all ATM Cards are not Debit Cards.
• There are many Scheduled and Cooperative Banks in India offering Internet Banking facilities, however most of them only for purpose of checking account balance. They need to be enabled for Online Transactions as well.

Mandates to improve Credit / Debit Card Penetration –

• Many Scheduled and Co-operative banks operate in India., not all of them issue Credit Cards or Debit Cards or ATM Cards.
• There are at least 300+ Scheduled Banks in India, the government should enforce up all the banks to issue Credit Cards & Debit Cards cum ATM Cards within an stipulated time frame.
• All Non-Scheduled banks in India with 300,000+ savings accounts operating at any level – City, Taluka, District or State need to compulsorily tie-up with a National Bank of its choice to offer Credit / Debit Cards to its customer base. (Similarly to Bancassurance Models)

ATM Network Connectivity –

• Ever wondered how you can use any Bank’s ATM card on any other? It is due to their inter-connectivity on the BANCS ATM Network. Unfortunately not all Banks/ ATMs are hooked up on this network – So no question here to guess on the recommendation.
• How is it linked to Online Transactions? – These consumers are most likely to use ATM cum Debit Cards and are more likely to mature and move to Online Transactions

Internet Banking –

• Scheduled Banks in India need to compulsorily offer Internet Banking facilities to its users and also ensure training terminals for same in its branches. If implemented and executed well, this might be a first hand experience for many Indians to Internet, for that matter even to Computers.
• There are many Scheduled and Cooperative Banks in India offering Internet Banking facilities, however most of them only for purpose of checking account balance. They need to be enabled for Online Transactions as well.

Payment Gateway Infrastructure –

• The payment gateway infrastructure in country needs to be improved – by which it means even the payment gateways need to have mandates on accepting all credit cards, debit cards and internet banking facility of all banks currently offering them
• There has to be also a mandate to integrate such services of any new bank within 180 days of it going live.

Connectivity –

No comments on the state of Internet & Broadband connectivity in India. But that is not the point here.  Imagine you doing a transaction in a small town like Mahabaleshwar on a Dial-Up Internet Service provided by a local ISP.

Now enjoy the view:

• From the merchant site you are directed to your Payment Gateway.
• You enter your details on Payment Gateway and click Submit.
• Through Visa or Mastercard switches that are located internationally of course – the same is routed to issuing bank for authorization and back to the Payment Gateway.
• Phew., that’s not enough – Credit Cards are now 3D secured, you need also authenticate yourself again by the issuing bank and later again routed through Visa / Mastercard to record the authentication.
• Post this you are routed back to the payment gateway and again back to the Merchant website.

Wow! And this is a world tour of some sort in 30 seconds, since by this time your transactions was routed through multiple ISPs, multiple Datacenters and multiple countries as well and all this multiple times.  So now imagine with state of (poor) internet connectivity in India, how many chances you have for connection dropouts.

One last point to be added here – even after going through all this, note that authorization of a transaction is completely left to the issuing bank and not Payment Gateway, Visa or Mastercard.

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Indian Electronic Payment Network (India Card) – Needs to be reality!

The last suggestion – RBI should possibly ensure facilitation and make roadmap for creation of an Indian Electronic Payment Network (owned and managed by Indian Government).

It is not confirmed if it will be named India Card, but RBI has plans to set up own payment processing system , as reported many times in news like this one last in Indian Express.  This is in line with China introducing its own payment network – Union Pay through its central bank – People’s Bank of China (PBC or PBOC).

There are benefits of having an Indian Electronic Payment and Processing Network only if one understands how costly it is for the banks to be a part of existing ones:

• When a bank issues you a Credit Card or Debit Card that is endorsed by either VISA or Mastercard, the issuing bank pays some amount to either of them.
• This issuing fees is irrespective of the fact if that card is ever used for any transaction or not. Issuing fees are higher for premium cards like Gold, Platinum, Titanium (or any undiscovered metal).
• The issuing banks probably also pay an annual fee to VISA or Mastercard to use its payment processing network.
• And of course, VISA and Mastercard do charge a small percentage (<1%) per transaction to the payment gateway.
• Plus, remember some one also pays for the bandwidth consumed while completing and online transaction too

So what are the benefits India Card comes to reality:

• The costs involved will definitely be on a lower side for issuing of cards, transactional percentage charged and annual fees for the issuing banks.
• Government could possibly waive off all fixed costs to banks for issuing cards (that is being very positive) and earn more with transactional percentage and taxes.
• The whole chain of connectivity issues while making an online transaction will be reduced since it can be safely assumed that all processing servers will be in India itself and would have adequate connectivity with banks and payment gateways.
• Currently different payment gateways charge merchants between 1.5% to 4%; when this lowers it significantly, directly & positively impacts profitability of all online transaction based services.

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Sounds kewl isn’t it? But to bring that to reality is different game all together.

India Card will need complex systems for fraud detections, authorizations, authentications, refunds and many others developed by VISA and Mastercard over years. Most importantly acceptance of India Card in all countries and on all payment gateways globally.., for which India Card would also require affiliation with VISA and Mastercard.

That’s all for now. Till then – Happy Transacting! 🙂