Increasing eCommerce & Online Transactions in India


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How Reserve Bank of India (RBI) can facilitate eCommerce and Online Transactions in India through Credit Cards, Debit Cards & Internet Banking. Does India Require its own Electronic Payment Processing Network?

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Increasing eCommerce & Online Transactions in India

  1. 1. being practical: Increasing eCommerce & Online Transactions in India 19, March 2010 pj | | How Reserve Bank of India (RBI) can facilitate eCommerce and Online Transactions in India
  2. 2. eCommerce = Healthy Internet Businesses <ul><li>Number of Online Transactions define how mature Internet audience in a country is. </li></ul><ul><li>Internet Businesses are sustainable when volumes of Online Transactions increase. </li></ul><ul><li>Means for Online Transactions in India: </li></ul><ul><ul><li>Credit Card </li></ul></ul><ul><ul><li>Debit Card </li></ul></ul><ul><ul><li>Internet Banking </li></ul></ul>
  3. 3. Online Transactions = Future of Internet Industry Future of Internet Industry & Ecosystem depends on Number of Online Transactions Internet Ecosystem Internet Ecosystem
  4. 4. Banks can aid India’s Internet Adoption! Data from: Vizisense on 19 March 2010 Total Users to top 5 banks: 16.25 Million per month Monthly Unique visitors in Million 35 Mn 60 Mn 46% 27% If India’s Internet User Base is <ul><li>35 Million, 46% users visit bank websites </li></ul><ul><li>60 Million, 27% users visit bank websites </li></ul><ul><li>1 in every 4 users visits a bank! </li></ul>
  5. 5. Scenario Today: Credit Cards: <ul><li>Estimated 25 Million Credit Cards issued in India </li></ul><ul><li>About 50% of these are active users ~ 12.5 Million </li></ul><ul><li>About 1 credit card user amongst 96 Indians; or 1.04% penetration for credit cards. Will be much lower with heavy credit card users holding 2 to 3 cards </li></ul>Debit Cards: <ul><li>Positive Steps that many banks are distributing ATM cum Debit Cards. </li></ul><ul><li>Due to this, distribution & penetration of Debit Cards will overtake credit cards </li></ul>Internet Banking: <ul><li>Promising first steps. However way to go. </li></ul><ul><li>Previous slide does not indicate 16.25 Million users using Net Banking. Even if they are, 95% of these would be to check account balance. </li></ul>
  6. 6. Plan of Action: How RBI can boost eCommerce transactions? Curb the loss of opportunity Mandate to improve Credit / Debit Card distribution ATM Network Connectivity Offering Internet Banking Improve Payment Gateway Infrastructure Internet & Broadband Connectivity Creation of Indian Electronic Payment Network - IndiaCard 1 2 3 4 5 6 7
  7. 7. Curb the loss of opportunity 1 <ul><li>Many banks in India issue Maestro Debit Cards; unfortunately they are not accepted on many payment gateways . RBI should mandate enabling of these cards for online transactions </li></ul><ul><li>All Debit Cards are ATM Cards; but all ATM cards are not Debit Cards. Banks still continue to issue such ATM cards. </li></ul><ul><li>Few Scheduled and Co-Operative Banks offer Internet Banking facilities for purpose of checking account balance. They still are not enabled for Online Transactions. </li></ul><ul><li>Many banks are yet to even start facilities of ATMs, Debit Cards, Credit Cards & Internet Banking for its customers </li></ul>
  8. 8. Mandate to improve Credit / Debit cards distribution 2 <ul><li>We have seen credit cards of Citibank, HDFC, ICICI, SBI, AXIS and many other banks. But not all Scheduled or Co-Operative banks in India issue Credit, Debit or even ATM cards. </li></ul><ul><li>There are 300+ scheduled banks in India. Government should enforce all banks to issue Credit Cards and Debit Cards (cum ATM Cards) within an stipulated time frame. </li></ul><ul><li>Many non-scheduled & co-operative banks operate in India at City, Taluka, District or State level. Such banks holding over 300,000+ savings accounts should compulsorily tie-up with any National Bank of its choices to offer Credit & Debit cards to its customer base. </li></ul>
  9. 9. ATM Network Connectivity 3 <ul><li>You can use your Bank’s ATM card on any other ATM as the banks are connected to the central BANCS ATM Network. Unfortunately not all banks/ATMs are still connected on to this network. </li></ul><ul><li>This is linked to Online Transactions cause these customers would later mature at some point of time to move towards Online Transactions. </li></ul>
  10. 10. Offer Internet Banking 4 <ul><li>All Scheduled Banks in India need to compulsorily offer Internet Banking facilities to its customers. </li></ul><ul><li>These Banks also need to ensure training terminals in its branches. If implement and executed well, many Indians will get their first experience on Online Transactions.., probably even on Computers. </li></ul><ul><li>Few Scheduled and Co-Operative Banks offer Internet Banking facilities for purpose of checking account balance. They still are not enabled for Online Transactions. </li></ul>
  11. 11. Improve Payment Gateway Infrastructure 5 <ul><li>Not a single payment gateway is available that accepts all credit cards / debit cards available in India. Internet Banking also needs to be integrated separately with individual banks or through aggregated gateway. </li></ul><ul><li>Payment Gateways need to accept all credit cards, debit cards and Netbanking of all banks that are presently offering the same. </li></ul><ul><li>Once any bank launches its Credit, Debit cards or Internet Banking facilities, the payment gateways should integrate the same within 180 days of going live </li></ul><ul><li>Much robust way for fraud detections and management is required. It will be more effective when banks and payment gateways share information with each other on the IP addresses, MAC IDs, fraud attempted CC/DC numbers and other relevant information. </li></ul>
  12. 12. Internet & Broadband Connectivity 6 <ul><li>Probably this one is more for Telecom department to implement and less for RBI. But it does impact., here is what happens you do a online transaction: </li></ul><ul><li>Enter Credit Card or Debit Card details on Merchant Website </li></ul><ul><li>Transferred to the Payment Gateway </li></ul><ul><li>Through VISA or MasterCard Network to the issuing bank for authorization and capturing the amount </li></ul><ul><li>Back to Payment Gateway for recording the authorization status </li></ul><ul><li>Payment Gateway checks if card is registered for 3D Secure, if Yes then routed back through VISA or MasterCard Network to issuing bank for authentication </li></ul><ul><li>Authentications status is recorded and then transferred back to the Payment Gateway </li></ul><ul><li>And back to Merchant Website </li></ul><ul><li>Congratulations! For completing World Tour in 30 seconds through multiple ISPs, multiple Datacenters and also Multiple Countries </li></ul><ul><li>Given the state of internet connectivity in India, you now know how many chances you have for connection drop or payment failure due to this. </li></ul>
  13. 13. Creation of Indian Electronic Payment Network (IndiaCard) 7 <ul><li>RBI should ensure facilitation and create roadmap for creation of Indian Electronic Payment Network. This has been in news for few years and rumored to be named as IndiaCard. </li></ul><ul><li>In line with China’s central bank – PBC introducing UnionPay </li></ul><ul><li>To understand benefits of an Indian Payment Network, one needs to understand why it is a costly proposition for Indian Banks to offer Credit / Debit card services. </li></ul>
  14. 14. <ul><li>For every Credit / Debit Card issued by any Bank that is endorsed by VISA / MasterCard, the issuing bank pays certain amount to them. </li></ul><ul><li>This issuing fee is irrespective if the card is every used or not. </li></ul><ul><li>Issuing fees are higher for premium cards – Gold, Platinum, Titanium, etc </li></ul><ul><li>Issuing Banks (may be) pay an annual fee to VISA or MasterCard for using their processing network </li></ul><ul><li>Someone out there also pays for the bandwidth consumed (national, international) when you attempt or even make a successful/unsuccessful transaction. </li></ul><ul><li>And of course, the small percentage (<1%) per transaction charge for every successful payment. </li></ul><ul><li>Phew.. And you thought its easier for banks to distribute cards?  </li></ul>Creation of Indian Electronic Payment Network (IndiaCard) 7 Cost involved in Credit/Debit card transactions:
  15. 15. <ul><li>Costs involved for banks in issuing credit /debit cards will be significantly lower </li></ul><ul><li>So would be the annual charges for using the Payment Network </li></ul><ul><li>Government could waive-off all fixed costs to banks (wishful thinking) and earn on transactional fees and taxes. </li></ul><ul><li>Since merchants, payment gateways and processing network – all of them will be located in India., the costs incurred in bandwidth consumption will be low and also chances for connection drops due to poor bandwidth significantly lower. </li></ul>Creation of Indian Electronic Payment Network (IndiaCard) 7 Benefits when IndiaCard becomes reality: <ul><li>Payment Gateways charge merchants between 1.5% to 4%. Even this charge will be lowered.. That directly and positively impacts the profitability of all transactional Internet Business in India. </li></ul><ul><li>Sounds Kewl?  </li></ul><ul><li>What this to happen immediately? It can’t! </li></ul>
  16. 16. <ul><li>IndiaCard will require complex systems – fraud detection, payment authorizations and authentications, refunds, and many others </li></ul><ul><li>When Indians travel abroad, the card should work Globally. Hence affiliations with VISA and Mastercard as well. </li></ul><ul><li>Online Transactions globally – acceptance on all prominent payment gateways across world including PayPal. </li></ul>Creation of Indian Electronic Payment Network (IndiaCard) 7 Challenges for IndiaCard: Happy Transacting on Visa & MasterCard till then 
  17. 17. thank you 19, March 2010 pj | |