Credit and debit card machines at a petrol pump in New Delhi. (Photographer: Prashanth Vishwanathan/Bloomberg News)

India’s Hunt For Point of Sale Machines Hits A Roadblock In China

After making cash scarce, the Indian government is trying everything it can to push Indian citizens towards digital payments.

On Thursday, a month after the government announced a decision to withdraw Rs 500 and Rs 1,000 notes almost overnight, Finance Minister Arun Jaitley announced a slew of measures to incentivise the use of digital payments. Among them was a plan to install two point of sale (PoS) machines in over 1 lakh villages with a population of less than 10,000.

The decision has sent banks scrambling in search of such machines. A search that will likely end in China.

The largest providers of PoS machines are two overseas firms - Verifone and Ingenico, which control nearly 80 percent of this market. Industry officials that BloombergQuint spoke to said that most banks tend to order from these firms, who in turn manufacture in China. This means that the process of ordering new machines, importing and installing them could take anywhere up to six weeks.

Banks have started placing orders but the timeline of delivery remains uncertain.

The country’s largest lender, State Bank of India, has placed an order for two lakh new PoS machines, said Rajnish Kumar, managing director at the bank. This (the directive) is being taken seriously by banks who are gearing up to order more PoS machines and acquire merchants, he added.

The banking sector in total has placed orders for six lakh terminals out of which we are ordering two lakh PoS machines after the government’s directive... We are unsure of the delivery timelines but vendors are likely to deliver these machines on time.
Rajnish Kumar, Managing Director, State Bank of India
India’s  Hunt For Point of Sale Machines Hits A Roadblock In China

At present, India has about 15 lakh PoS terminals which accept card payments but the acceptance infrastructure falls short of the demand as there are about 73 crore debit and credit cards in the country, according to Reserve Bank of India data for August, 2016.

Those in the payment systems business say that it will take at least five-six weeks for vendors to manufacture and deliver these machines.

“The major manufacturers of these machines are Verifone and Ingenico. If one wants to import a bulk order of, say, two lakh machines, it will take at least three weeks to manufacture, three to ship and one more week to be cleared by customs,” said Chirantan Patel, director of Gujarat based Cursor Software Private Ltd. which sells PoS machines.

Patel added that there are some companies in India who are trying to manufacture PoS machines but added that their manufacturing capacity is small. Bulk orders will have to be serviced by foreign vendors who manufacture in China or Taiwan, said Patel.

BloombergQuint also spoke to a head of a merchant acquiring payment solutions company, who spoke on the condition of anonymity. There are no big manufacturers of PoS terminals in India which increases the lag time between ordering and actual deployment of the terminal, said this person. He added that suppliers will find it tough to deliver on such large bulk orders at short notice so one might have to look for alternatives, the person said.

SBI’s Kumar shared the same concerns and confirmed that the bank procures most of its machines from companies based in France and the U.S. These machines, however, are mostly manufactured in China and shipped from there, Kumar said.

India’s  Hunt For Point of Sale Machines Hits A Roadblock In China

A Costly Affair

Apart from availability, cost will be a factor in adoption of card-based payment systems as well.

According to a Bank of America-Merrill Lynch report, merchants who buy PoS machines have to pay up to Rs 15,000 as a one-time cost after which they incur costs such as merchant discount rate on each transaction and up to Rs 1,500 in different fixed costs each month.

To ease the cost burden, the government has asked state-owned banks banks to cap monthly rental of PoS machines at Rs 100 per month so that merchants do not have to shell out large sums of money to operate these terminals.

“The government has ordered it so we will have to do it but the industry as whole has to agree,” said Kumar adding that rentals currently range from Rs 250 to Rs 500.

Are There Any Alternatives?

Instead of scrambling to order PoS machines, merchants ought to find alternatives, said Harshil Mathur, chief executive officer of Razorpay, a payment solutions provider which also offers mobile PoS systems.

Right now, most of the banks are out to find vendors who can deliver PoS machines but the rush is such that the demand can’t be fulfilled quickly...There’s a gestation time for the hardware which takes about two-four weeks to manufacture so the process can’t be skipped.
Harshil Mathur, Chief Executive Officer, Razorpay

These inevitable delays are being felt by merchants who have been trying to move to digital payment systems ever since the demonetisation decision was announced. The resultant cash crunch has led to a drop in transactions, forcing merchants to find ways around the use of hard currency.

A mobile phone retailer in Bengaluru, who didn’t want to be named, said his bank hasn’t provided him with a PoS machine for a month now, forcing him to use digital wallets to accept payments. The retailer said that the cost of PoS systems is acceptable but the delay in acquiring such a system pushed him to look for an alternative in the form of mobile wallets.

This is not surprising, said Mathur of Razorpay.

“All major stores already do have PoS machines and the smaller retailers probably can’t afford it because of high rentals and attached costs. Moreover, because of the current cash crunch, the time lag in manufacture (and supply) could be unmanageable forcing people to look for alternatives,” Mathur said.