Govt's digital payments push making banks suffer a loss of Rs 3,800 crore: SBI

The number of point of sale (PoS) terminals post demonetisation increased from 13.8 lakh in March, 2016 to 28.4 lakh in July, 2017.

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While the government is making every possible effort to push digital payments after demonetisation, but this could result in pain for bank, a research report said.

The government has been pushing the banks to install more number of PoS and banks are installing on an average 5000 PoS per day.

However, as per the report, with the current payment structure, the banks are suffering loss of Rs 3800 crore.

The number of point of sale (PoS) terminals post demonetisation increased from 13.8 lakh in March, 2016 to 28.4 lakh in July, 2017. This has resulted an increase in debit + credit cards transactions at PoS. Against this backdrop, it is pertinent to analyze the viability of card industry in India, State Bank of India said in its Ecowrap report.

"The overall loss of around Rs 3,800 crore per year is quite substantial and hence the sustainability of the card business depends on a number of factors like, merchant discount rate (MDR), low card usage, poor telecom infrastructure, lack of incentives to merchants to accept cards, insufficient awareness about the costs associated with use of cash," the report said.

Explaining the calculations, the report said that as per their estimates, for OFF-US transactions, the aggregate annual loss for card transactions at PoS terminals around is s 4,700 crore. However, the net revenue gain per annum from ON-US transaction at PoS would be around Rs 900 crore. Hence the total annual loss to the banking industry is around Rs 3800 crore.

Soumya Kanti Ghosh, the bank's Group Chief Economic Advisor, said, "We in fact believe the current humongous PoS infrastructure that the banks have developed have to be supported wholeheartedly."

Payment card industry

According to the report, the payment card industry in India is based on a four party model: Issuing bank, Acquiring bank, Merchant and Customers.

The Acquiring bank bears the entire cost to create the infrastructure for PoS terminals, clearing and settlement, merchant training, terminal maintenance, supply of consumables. while the Issuing bank involves the cost of issuing the cards and also manages other risks relate to card holders like failed transactions, frauds, etc.

"If the Issuing bank and Acquiring bank are the same bank, then the transactions at PoS are termed as ON-US transactions. While, if the Issuing bank and Acquiring bank are different entities, then it is know as OFF-US Transactions."

Acquiring bank, in turn, receives revenues only in the form of MDR and monthly rental. The MDR on debit cards has been at 1%, while there is no fixed MDR on credit card transactions.

"Needless to say, such revenue is grossly inadequate for banks to support revenue earned and hence a loss," the report said.

"Post demonetisation, RBI has lowered the MDR to 0.25% till the end Mar 2017, for transactions up to Rs 1000. These incentivised merchants to accept cards for the payment, but impacted the revenues of banks, as most of the transactions are in small amounts," it added.

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