payment solutions market in india

7/29/2019 Payment Solutions Market in India

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Payment Solutions Market in India

March 2001

A. Payment Types

Paper Payments

India is one of the few countries in the world to have a significant paper payment

volumes (probably after US, UK, Japan) though Indian economy is still predominantlycash-centric.

Primary paper instruments used are cheques, drafts, pay orders and interest/dividend

warrants. Volumes are estimated to be around almost 3 million per day (Source: RBIAnnual Report) with almost equal split between Mumbai, other metros (New Delhi,

Calcutta, Chennai) and remaining cities.

Significant part of this paper payment is automated using MICR based cheque processingsystems. Image based cheque processing has been introduced in all metros and a few

other centers. All the cheque processing based clearing houses is either managed by RBI

or designated banks on behalf of RBI. Settlement is done only by RBI or by SBI whereRBI does not have its presence.

Electronic Payments

ATMs

ATM penetration has increased significantly in India, especially in metros and mid-sizedcities, in last 2 years. This is primarily due to the fact that newer private banks are findingthis as very cost effective mechanism as opposed to setting up a branch, which has its

own challenges. ATM population is around 3200 today and estimated to be growing at

around 25% per year. Number of ATM transactions in India is around 800,000 per day.

Credit Cards

Credit card payments have gained a reasonable acceptability and penetration in last 5-7years. Though credit card volumes are not high (around 1 to 1.5 million card holders)as compared to developed economies, there is definitely an increased awareness in recent

years, which has lead to a lot of institutions (dominantly banks/FIs but a few others as

well) offering credit cards to its customers. General acceptability at merchant locations isalso growing reasonably.

Debit Cards

Debit cards are very recent phenomena with a few foreign/private banks venturing into

this payment type. Volumes are moderate (at less than 200,000) and transactions may

not be significant as of now. However, there is likely hood that this will increase in nearfuture as the acceptability picks up.


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ACH/ECS

There has been a push to move paper payments to electronic mode by RBI in recent

years. For this purpose, RBI introduced Electronic Clearing Service (ECS) in select cities

to make repetitive payments (both debit and credit) electronic. RBI is also working onsetting up a National ACH network and is likely to be implemented (at least pilot phase)

in 4Q2001. The number of ECS transactions was around 16 million (Source: RBI

Annual Report) in 1999-2000.

Credit/Debit Bureaus

As of now, there is no credit/debit bureau in India to facilitate payment guarantees for

other payment mechanisms such as e-check or cheque truncations. RBI has directedbanks/FIs to get together to come up with a credit/debit bureau and wants Indian Bank

Association to step in as well. It is understood that a few banks are working on this

concept but may be in preliminary stage.

B. Key Players

Cheque Processing

RBI/Banks

As mentioned earlier, RBI or its designated banks do clearing and settlement work. All

the MICR/Image based cheque processing centers are owned and managed by RBI (infour metros) and public sector banks (in 14 other cities).

Technology VendorsKey vendors in this area are IBM, NCR and HCL InfoSystems.

IBM has supplied cheque processing solution to RBI for all the high volume

centers (four metros) running on its mainframe systems and high speed documentprocessors.

NCR has significant share in providing its solution to no. of public sector banks

and also introduced first cheque imaging based processing in India.

HCL Infosystems has provided its solution to a few banks but not a very keen

player in this market.

Cheque imaging is currently confined to processing only and no bank offers chequeimages to its customers.

Third Party Processors

There are no independent third party processors in India.

ATMs & ATM Switching


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Banks/FIs

Individual banks own all the ATMs and they are also ATMS card issuers. Almost all

banks that have critical mass in terms of ATM installations have gone in for setting upATM switches themselves. However, since no. of ATM transactions are quite moderate

currently, most solutions are mid-sized and not high end ones.

Technology Vendors

There are 2-3 main solution vendors who are active in Indian marketplace.

Financial Software & Services (FSS) FSS represent ACI in India and havealmost 90 % market share with ACIs Base24 product. They have 19 installations

in India with individual banks. They have strong implementation capability as

they have development and support centers in Chennai and Mumbai.

Oasis Technologies Oasis is represented in India by IBM India and they have

one installation but not yet gone live.

Shared ATM Networks

There is only one shared ATM network in India by name SWADHAN. This is jointlyowned by IBA, HMA and FSS and called as India Switch Company. When it was set up,

it was supposed to provide shared ATM access to customers of public sector banksprimarily, but its growth has been less than expected. This initiative was supposed to be

rolled out in major cities in India but has not really taken off.

Credit/Debit Card Processing

Banks/FIs

Almost all the credit/debit cards issued by banks/FIs in India are either MasterCard orVISA affiliations. Most of the processing/settlement is done using MC/VISA facilities,

which are located outside of India. A few banks such as Citibank, HSBC etc. haveprovided POS devices to merchants but most of the POS devices are provided by a thirdparty provider Venture Infotech. Paper charge slips are quite common since

affordability of POS devices is still an issue with merchants. Most banks play role of

acquirer but Citibank happens to be largest acquirer being earliest entrant in this marketand good POS network.

Technology Vendors

As mentioned earlier, very few banks process their transactions themselves so there has

not been much market for credit card processing applications. Amongst some who have

some presence are

EuroPay They took over US-based Arksys Inc. and they have positioned ITMproduct of Arksys in Indian market but have no installs currently. They are also

looking at Shared processing facility in India thru a joint venture.


Venture Infotech (VI) initially a joint venture with Equifax, is key player as third party

processor. VI has good no. of POS devices that they have placed with merchants andwork on per transaction model with tie ups with banks/FIs. VI uses MultiXPac as


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solution to provide online authorization, merchant processing, giving acquirer facilities to

banks, settlements between institutions and routing to MC/VISA.

ACH/ECS

RBI/BanksCurrently RBI/Banks are playing key role in ECS processing since there is NO ACH set

up. RBI processes the ECS transactions submitted by sponsor banks on behalf of their

corporate customers. But ECS is primarily many-to-one (Debit) and one-to-many (Credit)model only and is not capable of handling person-to-person payments since there is no

many-to-many capability. RBI is currently implementing ACH to overcome this

challenge and facilitate person-to-person payments. ECS reach is in 6 centers only.

Technology Vendors

Right now no single vendor is geared up for addressing this market and provide solutions

since ACH is not in vogue. However, once ACH infrastructure is made available there

will be at least a few vendors who will offer solutions and services in this area. TCS is currently in process of developing ACH backbone on behalf of RBI (with

messaging/routing and security functionalities) and likely to put it on stream by4Q2001.


There are a few ECS third party processors but these are essentially subsidiaries floated

by banks to address repetitive payments aspect for their retail and corporate customers.

BillJunction.com (a entity floated by ICICI) is quite active in this arena.

C. KEY PAYMENT GROWTH AREAS

High Value Payments

RBI has embarked on a time bound program to establish a high value payments networkin form of Real Time Gross Settlement (RTGS) which will be available to entire banking

industry for funds transfer, specifically interbank transactions. RTGS project requires not

only backend processing application to be available but there will also be requirement fora front end gateway for banks to use this system.

ACH Processing

As mentioned earlier, ACH infrastructure is being set up by RBI and once that is

available for banking industry there will be a good possibility to offer ACH basedsolutions and services. Technology vendors (in partnerships with banks/FIs) can offer

products conforming to Indian ACH standards as well run processing centers on behalf ofbanks/FIs. In short term, ACH gateways, front end applications will be in demand but as

volumes grow and gets critical mass then processing outfits would be feasible.


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Credit Card Transaction Processing

Currently, most of the credit card transaction processing is done outside of India by

foreign banks or by lone third party processor (VI) within India. However, as volume ofcredit card holders grow and transactions increase there will be Indian banks/FIs looking

at this as a opportunity to become acquirers (and get larger pie) and tie up merchants in

their network to provide online authorizations and other value added services.

Credit/Debit Bureaus

Currently there is only generic interest in this area with not much being done on thisfront. But as more electronic payment infrastructure is available driving larger electronic

transactions (as opposed to cash/paper today) then guaranteeing payments will pick up

and lead to necessity of credit/debit bureaus.

Payment Gateways

Clearly as newer payment mechanisms are available a payment gateway kind of solutions

will be needed in real sense. Currently it is confined only to credit/debit card based

transactions.

D. Key Factors Affecting Payment Systems Market

Indian marketplace presents some of the unique opportunities in payment technology

however there are some key factors which will determine volume & value of business in

short term (3-4 years) scenario

Speed at which RBI is able to get payment infrastructure projects up and running

notably RTGS and ACH

Capability of Indian banks/FIs to adapt to these new payment mechanisms.

Primarily rollout issues which will determine availability of these mechanisms toretail/corporate segment

There are still legal challenges to be overcome such as changes in relevant laws

especially Indian Evidence Act which make electronic means as admissibleevidence

RBI regulations such as restrictions on independent payment gateways (only

gateways set up by banks/FIs are permitted).

Adaptation of electronic payments by retail segment and moving consumer

behavior from cash-centric transactions

E. Where eFunds India Can Play

High Value Payments

EFunds India is already partnered with Logica India and given a joint bid to RBI.

Competition is from IBM India. Should we win the bid it will give eFunds a uniquecapability in high value payments apart from current strong retail payment portfolio. This

project also has capability of taking eFunds into every bank in India thus giving us access

to entire banking/FI community for other payment product and services.


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ACH Processing

EFunds has a good positioning in this space, as we are involved in US ACH market quite

extensively. We can leverage eFunds products (like e-check, WebACH etc.) by suitablycustomizing them for Indian ACH formats and offer it to the market. EFunds can also

offer setting up for ACH gateways (with few banks) and leverage its expertise from US

and other international markets.

Credit/Debit Card Processing

We can address such opportunities by offering Connex and other related products in themarket. Also, setting up or running existing processing outfits might be a good option to

consider.

Debit/Credit Bureaus

As mentioned earlier, once ACH and other electronic payments become critical in terms

of volumes and value, we can offer our capabilities (both products and services) to

customers and address these opportunities.

Other Related Segments

Apart from normal payments market, eFunds is uniquely positioned to cater to ALLbanks in India in form Centralised Funds Management System (CFMS) we are building

for RBI. This will enable eFunds to provide a front-end application and services to all

banks and we can then leverage our core strengths in retail payments.

payment solutions market in india

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