Reserve Bank of India RBI

The Reserve Bank of India (RBI) has proposed to form Acceptance Development Funds (ADFs) to encourage wider deployment of card acceptance infrastructure, and rationalise Merchant Discount Rate (MDR) on debit cards – a fee every merchant has to pay to the bank to access their payment infrastructure.

“The high cost of acquisition and poor revenue from the acquisition business is one of the most significant reasons for low growth in acceptance infrastructure,” the RBI said in a concept paper on card acceptance infrastructure.

If the merchant access fee comes down, the benefits can be passed on to the customer as most merchants pass on the cost to the customer.

RBI believes that Acceptance Development Funds (ADFs) will contribute towards growing the electronic payment infrastructure in the country. Bigger the electronic payment infrastructure in the country, cheaper the cost of its usage.

While debit cards registered a growth of 64% between October 2013 and October 2015, during the same period ATMs increased by around 43% while POS machines increased by around 28%. Another disconcerting feature is that the rate of growth in setting up card acceptance infrastructure has also slowed down during these three years, said the central bank.

In the discussion paper, RBI said, “Low utilisation of cards in rural areas make it unviable and poor telecom connectivity in many areas lead to fewer transactions and consequently affecting revenues of acquirers.”

At present, RBI has capped charges at 0.75% of the transaction amount for value up to Rs 2,000 and 1% for transaction amount for value above Rs 2,000. The central bank also suggested rationalising the MDR in select categories in backward areas to encourage the use of plastic money.

RBI has also cautioned banks to issue cards for international usage only on specific request by customers, and if issued, it has to be EMV chip and PIN card to prevent fraudulent usage of cloned magnetic stripe cards or online use of cards in other countries.

The central bank also noted that the growth in the acceptance infrastructure has not been uniform across all locations in the country with higher concentration of such infrastructure noted in urban areas and larger towns and with larger merchants.

Kumar Karpe, chief executive officer, TechProcess Payment Services, said, “The issuance gap in POS terminals is glaringly high. For more than 25 million retail outlets currently, we have about 1.2 million POS terminals in India. Going forward, the POS gap will only increase leading to major acceptance problems.”


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