Airtel Payments Bank mentioned that it has issued more than two million virtual debit and prepaid cards within five months of its launch. Remember that payments banks are allowed to issue physical debit cards but Airtel has opted not to issue them to customers. Airtel Payments Bank is opting for a pure digital bank play and is also charging customers on cash withdrawals.
The company mentions that the cards will be accepted at over 100,000 e-commerce websites and other websites. The online card can be accessed by all Airtel Payments Bank customers via the My Airtel app inside the bank section.
It is unclear if the merchant discount rate (MDR), an interbank exchange fee levied on merchants, will apply for these virtual debit cards. The Reserve Bank of India (RBI) is currently looking at a differentiated MDR between acquiring infrastructure involving physical terminals (POS machines, mPOS etc) and digital acceptance infrastructure models. More on that here.
However, Airtel Payments Bank’s decision to not issue debit cards is understandable. Considering consumer behaviour, where debit cards are primarily used to withdraw cash, Airtel will have to pay significant amount in terms interconnection charges to existing commercial banks to use their ATMs. The cost of an ATM transaction is around Rs 20 and customers in metro cities are charged this amount after five transactions by commercial banks.
Note that payments banks are not allowed to give out any loans or issue credit cards. As such, Airtel will have to find new avenues of revenue and control costs.
Note that virtual cards are not a novelty. FreeCharge had launched FreeCharge Go last year which functioned as a virtual card which could be used to make payments across all online merchants in India, in association with YES Bank. But it looks like it has ended the card after it got its own wallet licence. In December 2015, Paytm partnered with ICICI Bank to launch virtual prepaid cards which could be used by wallet users at both offline and online stores for purchases. The virtual card could be used at any retail organization which accepted Visa, MasterCard and RuPay.
Airtel Payments Bank reported deposits of Rs 68.33 crore at the end of the financial year ended 31st March 2017, which was its first year of operation, according to its annual report. It’s top 20 depositors accounted for around Rs 20.45 lakh (around 0.3% of total deposits), which is probably a function the Reserve Bank of India limiting deposits in Payments Banks to Rs 1 lakh.