Growth opportunities for e-payment terminals in India

By Isha Mahajan & Abhinash on May 10, 2017
Image by Peoplecreations from Freepic.Com

The contemporary digitized era has welcomed innovative ways of transactions in the market. Today’s market boasts of speed, safety and convenience. Consumers are flooded with a vast array of digital payment platforms, online shopping and cashless transactions. In addition, sellers too are offered equal opportunities for handling and managing their sales (Reserve Bank of India 2016). One such unique feature of conducting digital transactions is through payment terminals.

Payment process through the point of sale terminal

These transaction machines are an amalgamation of software and hardware that enables the retailers to accept payments via plastic cards without updating their cash books to verify the cards directly. They follow a sequential process where first the information on the card is read. This is followed by verifying the availability of balance available in the buyer’s account. The next step is transferring the funds from the buyers account to the sellers account. Lastly, the transaction is recorded and the receipt is printed (Technopedia 2017). Point of sale terminals have replaced the traditional cash registers and are further loaded with more useful functions such as:

  • recording and tracking of customer orders,
  • processing of credit cards, debit cards,
  • connectivity with other network systems and
  • inventory management (Rouse 2017)

Growth prospects of point of sale machines in India

With the wave of a digital revolution, India no longer lags behind the trend of using these machines.  Until the end of 2016, there were 1.5 million points of sale terminals in India (Jain 2016). Besides, the ongoing trend of plastic money is likely to escalate this figure by another one million in the coming year (Jain 2016). In amid of demonetization of currency notes of 500 and 1000, India witnessed huge demand for transforming the cash-based economy into cashless. This very historical decision invigorated the need to search for alternative means of transactions. As a result, the point of sale machine became a good alternative.

Major suppliers of point of sale machines in India

The biggest providers of payment terminals are two international firms namely  Ingenico and VeriFone. These two firms cumulatively dominate almost eighty percent of the total market in India. After receiving the order these firms subsequently outsource the manufacturing of the machines to China.

Major distributors of Point of sale machine in India VeriFone Ingenico
Country of origin United States of America France
Number of employees 5000 6000
Total revenue $ 2 billion $ 2.32 billion
Revenue share from Asia- Pacific 11.8 % 20 %
Established 1981 1980

Another prominent provider of electronic draft capture machines in India is Pine Labs which witnessed a stupendous jump in demand of its machines. The ban on specified notes and following the path of digital transactions has surmounted its growth rate from 24% to 60% in a year. They have received demands from new emergent consumers such as college canteens, whole-sellers and small traders. Even the cities with high cash transaction ratio in the past such as Beed, Bokaro, Tiruchirappalli and Sindhudurg are ordering these machines owing to a new preference for card transactions (Srakar 2016).

According to the Reserve Bank of India, in 2016 the point of sale infrastructure fell short of demand as there are nearly 73 crores (730 million)  debit and credit cards in India (Jain 2016). This suggests that there is a huge potential market for the payment receiving machines and extensive distribution. Furthermore, the governments’ emphasis on creating a less-cash economy has subsequently resulted in the procurement of point of sale machines by banks so as to provide card swiping terminals to traders.

Major banks taking initiatives to distribute the point of sale machines

The major public and private sector banks that cracked contracts with major manufacturers and dealers of point of sale machines such as Ingenico and Verifone are:

  • State Bank of India,
  • Canara Bank,
  • United Bank of India,
  • Bank of India,
  • HDFC bank,
  • ICICI bank
  • Ratnakar Bank Limited and
  • Axis Bank.

Besides, they have further approached payment service providers like Atom Technologies for facilitating them with payment gateways and point of sale terminals (Bhakta 2016).

In addition, an official from HDFC bank revealed that pre-demonetisation the demand for point of sale machines used to be about 5000 a month. However, post demonetization it has been around 5000 per day. Furthermore, an executive of Axis Bank revealed that they have placed an order for 40,000 terminals. However, this figure is expected to increase further and go beyond that owing to pressing demand from the merchants. He further revealed that payment terminals have an average cost of Rs 6000 to Rs 10000. This cost is generally borne by the banks especially in the case of large business volume traders.

substantial increase in the number of payment terminals after demonetization in India
Number of POS terminals in India; Source ( RBI, 2017)

In addition managing director of Canara Bank shared their plan of installing 25000 terminals in the coming months which will serve the dual objectives. Firstly, boost their account balances and second would lead to increased customer satisfaction. The sudden demand has welcomed tremendous opportunities for companies involved in the business of purchasing and installing terminal orders for banks.

There are many banks that outsource their terminals to other companies instead of buying their own. An important player in the payment terminals outsourcing business in India is Atom Technologies. Its managing director revealed that since November 2016 they had received bulk orders such as 10,000 terminals from the United Bank of India and 20,000 terminals from RBL Bank. In addition to this, they have already installed 27000 payment terminals for the Union Bank of India. Although, big business houses, retail outlets and shopping malls are already acquainted with such payment terminals. The current burgeoning demand is mostly being felt from small towns, medium and small size businesses and grocery stores (Singh 2016).

Major payment gateways for payment terminals in India

The transaction through a point of sale machines is processed with the help of a merchant service commonly referred to as payment gateways. The payment gateways allow the payments via credit card or other plastic money modes to be processed for the users such as retailers, business merchants and e-commerce traders. Major payment gateways for point of sale terminals operating in India include:

  • Instamojo payment gateway,
  • CCAvenue payment gateway,
  • E-billing solutions (EBS) payment gateway,
  • Atom Paynetz payment gateway service,
  • Citrus payment gateway,
  • DirectPay payment gateway service,
  • PayUbiz payment gateway service,
  • ZaakPay payment gateway and
  • Emvantage payment gateway service (Chandra 2015).

Revenue from payment terminals

Furthermore, one of the key initiatives to encourage the deployment of point of sale machines by merchants is to foster a digital economy. Reserve Bank of India has rationalized merchant discount rate (MDR) for debit card transactions since September 2012. Merchant discount rate is the fees charged by the point of sale machines installer from the merchant for the use of its infrastructure. The scheme operates by offering a merchant discount rate at the rate of 0.75% for transactions worth up to Rupees 2000. Furthermore 1% for transaction above Rupees 2000.

There are five stakeholders in the transaction process via point of sale machine terminals. Firstly merchant or the payment gateway hired by merchants, point of sale terminal installer, card network, customer and card issuing bank. Merchant or the payment gateway bears merchant fees and taxes. The point of sale terminal installer bears the cost of capital equipment and maintenance charges. Card issuing banks bear issuance costs, replacement and maintenance charges and finally the customers bear annual card fees, convenience charges and surcharge on the use of cards (Reserve Bank of India 2016).

Scope for new players in point of the sale distribution system

In conclusion, the advent of a less-cash economy and enhanced customer sovereignty and quality experience calls for the demand of an extensive distribution network of point of sale terminals. Therefore with an increase in the number of terminals, there will be a demand for a number of payment gateways in the future. The untapped users vis-à-vis small merchants, tier III cities and rural areas need to be captured. So there is huge scope for new players in the point of sale distribution channel as well as in the payment gateway services.