With the demonetization in swing, Manish Patel, CEO of POS terminal company MSwipe, narrated an incident to me, when a person was trying to pay for medicine using his debit card, presumably for the first time.
Patel said that the individual had a worn out magnetic stripe card which he handed to the shopkeeper who asked him to enter his PIN. The gentleman who was trying to buy medicine said that he did not know what a PIN was. He had to be prompted, that this was the same number he entered at an ATM to withdraw cash. After three attempts to enter the PIN, the card was blocked by the bank. The man cursed and left the shop understandably upset without the medicine he needed. Note that POS terminals across the country were down across the country during the period with the additional load on machines.
“With demonetization and card payments failing, the first experience for many card holders in now a disaster. Users would be put off by the entire experience and would revert to cash because it is simple and everyone understands it,” Patel added. Many in the payments industry would agree that the first time experience is vital to make sure a customer keeps coming back to the service.
Why debit cards matter
Patel’s fears of card payments failing may have some truth to it. After cash, the most prevalent payment instrument in circulation are debit cards. The NPCI says that there are 755 million debit cards in circulation and 40% of them are on the RuPay card network (around 302 million). A majority of RuPay cards are issued under the Jan Dhan Yojana scheme for financial inclusion (the number of RuPay cards from Jan Dhan Accounts stood at 194 million) and many of them will be first time users of cards at POS terminals.
Debit card usage in India has been mostly predominant at ATMs to withdraw cash, which the Reserve Bank of India (RBI) itself admitted. From April 2015 to December 2015, the usage of debit cards at ATMs accounted for around 88% of the transactions and around 94% of total value of debit card transactions.
Demonetization is also an opportunity to take debit card usage beyond just ATM withdrawals.
Asymmetry in POS terminals
As we have pointed out many times, India has the dubious honour of having one of the lowest POS terminal penetration, according to a 2015 Ernst and Young report. The report said there were only 693 machines per million of India’s population, compared to similar emerging countries such as Brazil, which has 32,995 terminals per million people and China and Russia, each of which has around 4000 terminals per million people. The number of POS machines issued from banks has improved to over 14 lakh in July, as shown by RBI data.
A closer look at the POS terminals deployed in the country, we see a curious concentration. The top banks in the country – State Bank of India, ICICI Bank, HDFC Bank, Axis Bank and Corporation Bank – have the highest number of POS terminals accounting for 80.94% of all terminals in the country.
Card acceptance infrastructure must improve into villages and hinterlands else this would leave people no other option other than withdrawal of cash from the ATM.
Need for education – MediaNama’s take
The Jan Dhan Yojana is great initiative, but financial inclusion does not stop at just at bank accounts. Right now 23.27% Jan Dhan accounts have zero balance. These account holders need to be educated about the benefits of entering the formal banking system and having savings. This would also include educating first time users on how to use debit cards and pay for transactions online and at POS terminals.
HDFC Bank has an interesting digital strategy for customers who walk into branches. All bank employees are mandated to point customers to their digital channels for their banking needs and explain to them how they can use them. It is also incentivizing customers to use its wallet PayZapp to get cashbacks and other banking apps. Similarly, banking correspondents could be instructed to educate customers on the basics of digital modes of banking.
There needs to be a conscious effort by the banks to build out a payments infrastructure to cater to the unbanked and constantly educate them about the benefits of having a bank account.