An underdeveloped, diverse and fragmented Indian payments market represents an opportunity for companies to help bring stability to that market, a new report from Mercator Advisory Group suggests.
The Reserve Bank of India has said the “untapped potential with regard to financial inclusion needs to be harnessed using cost-effective technology [services] and appropriate business models that make small-value transactions viable,” Mercator notes in the Jan. 26 report.
India’s financial-services industry has sputtered despite a growing technology industry and middle class, the report notes. Only 40% of the 1.17 billion citizens have a bank account, and even less (13%) own a debit card. Some 2% own a credit card.
The Indian government’s priority is to involve more citizens in a banking relationship, the report says. The central bank has launched a number of initiatives to accomplish this goal (
The bank has targeted 160 remote, unbanked villages to bring into the financial system with 100% financial inclusion, the report says. Each household in those villages will have at least one line of credit.
Overall, the financial-services industry is improving, says Ben Jackson, the principal analyst who worked on the report. The central bank “is trying to be very deliberate about the way” it improves services in India, he adds.
India also is giving citizens another option to open a bank account. The Aadhaar number issued by the Unique Identification Authority of India now is an officially valid document that satisfies the Know Your Customer regulation. Before this option, banks required documents that include a passport, driver’s license and voter identification card, among other options, the report says.
Mercator found point-of-sale terminals in India are not used very often. There were 470,237 terminals in India as of the end of May 2009, according to a study conducted by the India Institute of Technology in Bombay. On average, consumers initiated 468 credit card transactions and 340 debit card transactions on each POS terminal for the fiscal year that ended in March 2010.
Those figures translate to an average of less than three card transactions per POS terminal per year, Mercator says.
Credit card use in India has stalled the past few years, thanks to the financial crisis. Transaction volume was down 9.7%, to 234.2 million transactions for the 12-month period ended March 2010 from 259.5 million for the same period the previous year, according to the central bank. Debit card use rose 33.3%, to 170.1 million from 127.6 million (
Several Indian retailers and banks have launched initiatives to grow the country’s prepaid market, which Mercator views as an undeveloped sector.
Pizza Hut Inc. in October introduced gift cards consumers can purchase online and at supermarkets for any denomination between US$5 and $110. Pizza Hut has asked several retailers to sell the cards at their counters and give away the cards as a discount reward for purchases, according to Mercator.
Baskin-Robbins Inc., PVR Ltd. and Tanishq also have gift-card programs.
Open-loop travel cards are popular in India, Mercator says. Eight banks in the region offer the card.
But Mercator also cites a Visa Inc. report that found only 2% of 910 survey respondents possessed a prepaid card. Some 40% were not aware the cards existed.
The central bank is developing a mobile payments infrastructure, and the initiative is a priority, the report says. As of December 2009, there were 525.1 million active mobile phones in India compared with 37 million landlines.
The bank views mobile services as a way to get more consumers to use electronic payments, the report says.
Jackson believes mobile transactions will be a larger part of the payments space in India than in the United States. Merchants likely will find it easier to use a wireless-payments infrastructure using mobile phones than by connecting to a network via a POS terminal, he says.
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