A customer uses a credit card to make a contactless payment (Photographer: Simon Dawson/Bloomberg)

Card Usage Grows, Payments Get Smaller

Credit and debit card payments have managed to sustain steady growth even as the new real-time United Payments Interface threatens to eat into their share of cash-less payments.

The average monthly volume and value of card payments have doubled since demonetisation, according to the Reserve Bank of India data. The average monthly value was Rs 78,798 crore between April 2017 and May 2018, surpassing the peak of Rs 76,541 crore in the first three months after demonetisation.

And while the number of point-of-sale terminals almost doubled after demonetisation, the average number of transactions per machine has remained nearly unchanged. What that means is cards are being used to make smaller payments. Even when the currency in circulation at Rs 18.4 lakh crore—as of April 6 data released by the central bank—is higher than the pre-demonetisation level.

The note ban outlawed 86 percent of the currency in circulation, triggering a cash crunch. The usage of e-wallets spiked initially, but later eased and then ran into central bank’s stricter know-your-customer norms. Transactions through UPI, used largely to small-value payments, continue to zoom though. They spiked 30 percent in June alone.

Yet, adoption of cards is growing, helped by mobile-linked point-of-sale terminals provided by the likes of Mswipe and Ezetap. They've found users among everyone from neighbourhood kirana stores to online retailers like Amazon and Big basket.

“What demonetisation did for us is that it compressed about three-four quarters of growth into one quarter, and also familiarised new customers with the prospects of using the card for payments,” Manish Patel, founder of POS merchant acquirer Mswipe, said over the phone. It has about 3,20,000 merchants, with 25 percent of the terminals in the tier-III towns. Patel says they have a 12 percent market share in terms of installed base of terminals.

Banks still dominate, accounting for 80 percent of the machines deployed. But new POS terminals not only aggregate multiple bank-led card transactions on the platform, but even allow UPI, QR Code and wallet transactions. They also allow automatic settlement, reconciliation and online tracking of the transaction history. All these services help firms maximise their revenue from each merchant.

Ezetap, which counts Amazon, Big Basket and banks as its clients, doesn’t rely on a per transaction fee, and only charges a monthly fee for its services. It has about 2,00,000 touch points in the country and charges about Rs 200-600 a month for its services and about Rs 3,000-7,000 for the device.

The overall investor sentiment for such platforms also picked up.

In 2016, prior to demonetisation, four companies raised just about $13 million in total funding. In comparison, three companies alone mopped over $250 million in funding in the last 18 months, according to data shared by startup tracker Tracxn. Investors, including Singapore government’s investment arm Temasek, Matrix Partners, DSG consumer partners and Infosys Co-Founder NR Narayana Murthy's Catamaran Ventures, among others.

“There were a lot of investors who thought wallets will take over, and POS companies like us will die,” Rajeev Agrawal, founder and chief executive officer of Innoviti said. “Now we receive calls every four or five days regarding investment.”