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18 April 2012
Gareth Lodge
I hope many of you will have had chance to read Zil’s excellent report on the outlook for a 3rd European Card scheme. I think we’re left in no doubt on his opinion – and one to which I whole-heartedly agree. However, I was reminded this week that this position – “don’ re—invent the wheel” – shouldn’t necessarily be applied to all other markets. The National Payments Corporation of India have been talking about their new national debit card, RuPay. India has low levels of card penetration, for some obvious reasons. The levels of unbanked are significant. For example, one of my favourite “wow!” statements (though I’ll free admit to not being able to identify or confirm the source) is this: There are more people in India with mobile phones, but without a bank account, than the entire population of the US. Some of the noise so far about RuPay has been that it will be significantly cheaper than its international card scheme rivals. One source has suggested that the rivals charge charge around $30,000-$50,000 as one-time fee and around $10,000-$30,000 quarterly fee from the banks, whilst RuPay does not charge any one time joining fee from banks and other charges are around 40% less than Visa and Mastercard. I think those are important aspects, but its much broader. Whilst the work started in January by UIDAI, the body tasked with issuing a unique ID to every Indian citizen, will help (as after all banks are more likely to engage with people they can track and identify, a major issue in country), there are some more structural problems. Part of this is the switch from how things work currently. For example, shopkeepers have been reluctant to accept cards. Why? It’s not just the delay in funding and the margins & fees on very low prices, but something more fundamental. They like cash because they pay their suppliers in cash, their staff in cash, particularly as many don’t have bank accounts and therefore there is no other easy of paying them etc. Cards potentially make that a double challenge. Cards may or may not be the appropriate payment type – a discussion in itself – but more significant growth can be achieved by addressing the wider value chain, particularly those parts outside of their usual remit. With NPCI having a much broader remit, that’s why I believe that RuPay could well be the right answer. And its not all bad for the others as they’ll benefit from the growth in card attractiveness and a more developed market.

Comments

  • I wonder if RuPay isn't a rather reactionary response though Gareth, more about envy of the success of the Chinese domestic debit scheme than a considered response to the problems of 21st century India. If you're going to set up a new scheme, why not base it on M-PESA rather than China UnionPay? Or why not use the UUID to front-end M-PESA-in-the-cloud?

    The requirement for terminals and connections seems so last decade in a country where 80% of the population have a mobile phone..

  • As always Dave, a good point well made.

    India is a fascinating place to watch and I wouldn't claim to understand everything that happens. However, we need to consider the bigger picture. In 2005, the Reserve Bank of India set out it's vision of what it wanted to achieve in the period 2009-12. The scope is mind-boggling - RuPay was one element, but it also included, amongst other things (!) a 24/7 faster payment scheme, a significant upgrade of the ACH, & a mobile payments settlement system. All in 3 years. SBI have since placed the single largest orders of POS devices, ever. The focus then is less on the scheme but on creating the infrastructures that we take for granted elsewhere. Indeed, I think some of the infrastructure will be far superior in technology and functions than found in many other countries.

    M-PESA has been a great success but it was still early days for it when the vision was set out. Whilst I absolutely believe mobile is the future, I'm not sure we've seen too many other instances where mobile schemes have achieved the same success. I know you're very close to them so would be curious to hear how its translated to other markets. In that context, perhaps building the path, the foundation, that takes them in that direction is a wise idea.

    And perhaps on a more political note, I do wonder there was an element of control at play as I'm told the banks are much more tightly regulated than the mobile operators. Its not uncommon for RBI to issue an edict and give the banks only a few days or weeks to respond - and the banks do respond.

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