One of the hallmarks of today’s India is burgeoning consumerism, which in many ways has become the backbone of the Indian economy. What is peculiar in this trend is that while consumers have evolved to demand world class products and service, their purchases continue to be made through cash. Why?
It is estimated that almost 75% of the transactions transpire in cash. Clearly, with over 400 million cards in circulation, this is not the problem. Consumers are gaining confidence in using their cards with heightened security now in place on card transactions. And yet, a large majority of debit cards are still not active for purchases.
One reason that is often quoted is the low number of retailers having a Point of Sale (POS) terminal to accept cards. While, this is not entirely untrue, the reality is more nuanced. There are one million POS machines for 12 million merchants in the country. This is a startling number. Traditional POS machines are expensive infrastructure, and their viability is proven only above a certain minimum transaction volume. This leads to two outcomes. First, banks keep pushing their POS to larger merchants and this space becomes overcrowded leaving almost no business opportunity. Second, small-and-medium-sized merchants stay away from POS machines given the high cost and low card footfalls.
Small-and-medium sized merchants need a payment device which comes with absolutely low-cost deployment and low ongoing maintenance costs. At the same time, it should uphold the highest standards of transaction and data security via PIN authentication and all security certification standards. Finally, it should leverage the infrastructure that is available- smartphones and plastic cards, both of which are in abundant circulation today.
In India, Mobile POS (MPOS) can bring in a revolution as the cost of the POS device goes down significantly, as much as 50% of the present cost. This is a disruptive change, which can drive the next 3-4 million merchants to start accepting in-store card payments simply by pairing their existing smartphones with a pin enabled MPOS device. What’s more, the mobile app can potentially deliver significant value adds such as EMI payments, mobile top ups, payment analytics and even cash and check reconciliation.
Compared to western markets where cards are widely used, and a majority of merchants have a POS terminal, India has a bigger opportunity in growing its payments infrastructure at a lower cost. In countries such as the US and in western Europe, MPOS is being offered to “micro merchants” such as self employed plumbers, carpenters and electricians where usage might be sparing at best. But MPOS in India will be found in physical stores, and that number is in the millions. This is a fundamental distinction that augurs well for the future of MPOS in India.
MPOS can also serve “on the go” transactions at the customer’s doorstep. For example, pizza delivery boys can collect their payments using MPOS. You can buy online and pay for the product with a card at your doorstep. Insurance premium can also be paid using MPOS. The list goes on.
However, there’s more that needs to be considered to enable widespread adoption of this new technology. These are financial transactions, and merchants prefer to deal with trusted payment brands and financial institutions. They require a single product and service window, rather than dealing with multiple entities. Finally, they require a reliable product where transaction speed is at par with other POS terminals, and settlements are received like clockwork.
The product and industry is still at an early stage, and yet it is already making an impact in certain payment categories. The jury is still out there, and MPOS providers need to come true on the promise. But, at the least there is a promise.
Views expressed here are personal