Traditionally electronic payments have meant Debit and Credit card payments at shops; and the global norm is for the card issuing bank to charge the merchant a percentage for the transaction. In India, the charges are 0.75% and above for debit cards and 1.5% and above for credit cards.
Despite the presence of cards and card payment acceptance in the country for at least 40 years, the reality is that till recently hardly 300,000 merchants out about 15 million merchants were equipped to accept card payments.
The reason was two fold –
1) the merchants did not like the idea of paying the transaction fee and a monthly fee for the device when cash was so easily coming in from the customer.
2) Banks did not venture beyond large and medium merchants to offer the card devices since they did not expect too many transactions from the others.
The conservative approach of banks
The banking industry has done very well in terms of the regulation and compliance processes, but have been quite conservative in their approach to bring forward major initiatives.
Having seen the telecom industry from close quarters, if the telecom industry’s competitive and aggressive business philosophy had been applied by banks, the results would have been far different.
If, for example, over the years, the banks had pushed card devices across merchants in a large way and kept charges to the bare minimum, they would not really have lost anything significant.
On the other hand, they could have gained substantially in terms of float in the banks, with money remaining in bank accounts since consumers could use cards everywhere.
And by now we would probably have had over 50% of merchant transactions happening electronically instead of the 5% level which was there before demonetization.
The new opportunity to disrupt and re-invent
Today, with demonetization and the government’s drive towards electronic payments, it is a golden opportunity for India to re-invent the concept of merchant payments, by removing all charges to merchants.
Instead, the merchant should be asked to buy the device or subscribe to the app as a one time investment. He then should actually be incentivized every time he receives an electronic payment to the tune of say 0.5%.
This would energise the entire retail trade to procure card accepting devices or other electronic payment acceptance modes.
The banks or other payment service providers could look at income from float that would accrue and from that, give a small share to the merchant towards incentives.
The National Mobile App and QR code
With the launch of BHIM app and the BharatQR, a QR code system for shops, electronic merchant payments have become
a) Mobile phone based and
b) brand or bank agnostic.
With this, even the card accepting physical devices becomes irrelevant, at least to the extent of debit card payments. If credit cards are enabled to be stored virtually in the BHIM app, card devices would become totally redundant.
This will go a long way in making merchant payments electronic and cashless.
Building an Info driven Economy
Moving to electronic forms of payments brings other collateral benefits to the payment service providers and banks in terms of marketing data. This could be monetized by providing intelligent analysis to both manufacturers and merchants.
If India needs to do a permanent shift to electronic payments and not gradually revert back to cash transactions, this kind of a dramatic, disruption in the payments system is a must.
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