RBI floats concept paper on card acceptance infrastructure

Mumbai: The Reserve Bank of India today came out with a concept paper to encourage card transactions and move towards 'less-cash' society by developing a card acceptance infrastructure.The RBI's over-arching vision for payment systems in recent years has been the encouragement of electronic payments and migration to a 'less-cash' society.

Cash continues to be the predominant mode of payment as it appears to be "costless" in comparison to the visible costs associated with card/electronic payments.

Among other things the paper proposes promote setting up of Acceptance Development Fund (AFD), which are market-driven initiatives where different stakeholders in the card payment value chain come together to set up a program to encourage wider deployment of card acceptance infrastructure.

Typically, these ADFs are generally funded by card issuers to build a corpus by diverting a percentage of their transaction revenue into the fund which is then invested to expand acceptance infrastructure in the country.The paper further talks about rationalisation of Merchant Discount Rate (MDR), which is major source of revenue in the card business.

Kumar Karpe, CEO, TechProcess Payment Services, “The issuance gap in POS terminals is glaringly high. For more than 25 million retail outlets currently, we have about 1.2 million POS terminals in India."

"Going forward, the POS gap will only increase leading to major acceptance problems.We appreciate the Reserve Bank of India’s latest strive towards pushing the use of card payments," Karpe added. 

He further pointed out that India needs to leapfrog the gap by leveraging the existing infrastructure of more than 200 million smart phones and work towards a virtual mPOS solution that converts a merchant’s smartphone into a virtual Point-of-sale device.

It has suggested multiple options for rationalisation of MDR for debit card transactions. These include, uniform ad-valorem MDR across all merchant categories and locations;  differentiated MDR at select merchant categories at all locations and  setting MDR for debit cards as a fixed/flat fee for transactions beyond a certain value.

The policy focus of the RBI has been to facilitate the growth in electronic payment services and also ensuring safety and security of such transactions.

Recent government announcements support and reinforce the need to migrate from cash payments and to promote card and other electronic payments.With increasing customer confidence and concerted effort of all stakeholders, a growing trend in retail electronic payments has been observed, RBI said.

"However, there is a concern that the commensurate growth in infrastructure, particularly those that facilitate electronic payment for purchase of goods and services, has not kept pace with the requirements of all segments of users across all geographical locations," it said.

Regulatory intervention in the form of rationalisation of MDR a few years earlier has also not had the desired catalytic effect.

There is a need to examine holistically the relevant issues that come in the way of acceptance of card payments and deployment of infrastructure for the same, RBI said while inviting comments on the paper till April 15.