Reserve Bank of India’s payment gambit - By Sriram Natarajan, COO, Quatrro Processing and Analytics Services.

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- RuPay – India’s challenger to Visa/MasterCard …

- RuPay – India’s challenger to Visa/MasterCard
- India’s cards industry – the story to date
- The enormous un-banked opportunity in India
- RuPay – so what’s new?
- Can RuPay emulate China UnionPay?
- The long hard road to get it right

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  • 1. Will RuPay pay off? ________________An Overview of ReserveBank of India’s payment gambit
  • 2. On the Agenda  Introduction  RuPay – India’s challenger to Visa/MasterCard  India’s cards industry – the story to date  The enormous un-banked opportunity in India  RuPay – so what’s new?  Can RuPay emulate China UnionPay?  The long hard road to get it rightQuatrro Confidential 2
  • 3. RuPay – a new beginning  RBI took up the challenge and set up the Board for Settlement and Payments Systems in 2005.  Vision of an umbrella payment institution covering all retail payments in India.  NPCI (National Payments Corporation of India) set up in Dec 2008 to launch and operate RuPay as an independent payments switch.  Heavyweight promoters, including ten leading banks in India on the Board – SBI, Canara Bank, Citibank, HSBC, etc.  Leading Issuers and Acquirers join RuPay.  Envisaged as the National Payments switch that will process all forms of retail payments (POS, ATM, Internet, Mobile and Prepaid).  Seen as an end-to-end domestic payments switch along the lines of China UnionPay. After slow progress, RBI released another Payment System Vision Document for 2012 – 2015 in July 2012!Quatrro Confidential 3
  • 4. India’s Card Industry – an underweight  Credit Card Industry lost “sizzle” in the downturn: • Debit rules the day and also mostly on ATM – 94% on debit • Rs. 755 Billion of usage on cards in India in 2010 – less than 4% of consumer spend • Less than 18 million credit card users – down from the peak of 26 million in 2007 • Revolve rates less than 30% of receivables.  The cards industry grew at a CAGR of 28% in the last 4 years .  Debit garnering the largest share of growth – with a CAGR of over 28% growth in market share.  Weak growth in Merchant Acquiring – one of the lowest POS penetration rates in the world with 497 terminals per million population.  Only 3 banks in Acquiring space.  Cash is still King!Quatrro Confidential 4
  • 5. Massive Un-banked opportunity  RBI says that more than 145 million rural households have no access to banking.  The World Bank estimates that less than 40% of India’s adults have a bank account.  But India has more than a billion mobile phones.  Gap mainly in rural India – despite the RBI designating rural areas as a ‘priority sector’ with lending targets.  Government disbursements (such as subsidies or social benefits) made predominantly in cash through agencies (Rs. 2.93 trillion). If disbursed electronically it would equal 4.13 billion transactions per annum.  Ample faith in banking system due to public sector banks – not translated into electronic payments usage.  Poor adoption of online payments – partly due to low internet penetration. Huge opportunity to use RuPay and bring the ‘lower half of the pyramid’ into the banking foldQuatrro Confidential 5
  • 6. RuPay – can it lift the payments industry?  RuPay is expected to cover all form of payments, including debit, credit, prepaid, ACH, mobile, online and multiple variations – help in the push towards a less-cash dependent society in India.  Mission statement: to ensure a payment infrastructure that is safe, efficient, interoperable, authorised, accessible, inclusive and compliant with international standards.  Puts a lot of emphasis on ‘affordability’ – in line with the global regulation of interchange rates.  RBI released a Circular on Merchant Discount rates in July 2012 – capping MDR at 0.75% up to Rs. 2000 ($36) and 1% for transaction amounts over Rs. 2000.  RuPay seeks to integrate the myriad number of switches and payment systems operating in India.  Build capacity for the future and setting standards on interoperability and acceptance across multiple channels. RuPay is the only route to a universal Next-Gen payment infrastructureQuatrro Confidential 6
  • 7. RuPay- how does it stack up?  RuPay still at the starting block when compared to China UnionPay (CUP) or even the Brazilian domestic switch.  CUP has more than a billion cards on its network – 200 million of them are credit cards.  Lack of a reliable citizen ID infrastructure in India is a huge drawback. The Aadhar – UID initiative – is yet to take off with the banks still yet to accept it as identity proof.  Roadmap still not clear – key issues like the re-issue of cards and integration with all the payment networks among the top show stoppers.  Little enthusiasm among banks to invest in a migration.  Low transaction volumes killing the business case of mass adoption.  Absence of consumer protection laws further hampering growth of RuPay. Despite the huge challenges, RuPay still remains the only viable option for ‘electronification’ of Indian paymentsQuatrro Confidential 7
  • 8. How should RuPay make it work?  To be a success, RuPay has to take a different approach: • Use mobile technology and internet channels to supplement its ‘personal’ connect ion with consumers • Use the vast reach of ‘branch’ infrastructure of public sector banks to maximize adoption • Be the harbinger of adoption of latest technology and provide a ‘stimulus’ to growth • Centralised approach with standardisation of services • Make it easy for consumers to convert current cash-based products and services into electronic and mobile based products • Integrate all clearing houses and payment settlement channels • Run RuPay as an independent technology company with a profit focus. Adopt a unique tailored business model – based on latest technology and sound risk management principlesQuatrro Confidential 8
  • 9. Questions? Thank You! Sriram Natarajan www.quatrro.comQuatrro Confidential 9