Excerpts from an interview with AP Hota, Managing Director of National Payments Corporation of India.
On business correspondents and how they can drive financial inclusion
The finance ministry says there are 1.3 lakh business correspondents (BCs) in the country and most of them are fixed-place BCs like in panchayats or shops. Along with them, banks also have a huge army of facilitators who move around to provide villagers with basic banking services. That number could add up to around six lakh.
This network is extremely vital so far as financial inclusion is concerned. Micro ATMs have become their biggest banking tool as they can help customers with account opening, deposits, withdrawals and remittances. BCs can play a dual role, both as BCs as well as merchants.
On conflict around interoperable charges
The BC network of the country can only be effective when there is interoperability between banks and BCs. But then interoperability comes with certain fees, which as of now are fixed between Rs 5 and Rs 15. It was found that instead of showing a lot of transactions as merchant transactions, they are showing them as BC transactions. Instead of accepting payments digitally, the merchant makes the customer withdraw money through micro ATM and then accept the payment in cash.
After prolonged discussions, we decided on a minimum fee of Rs 3 and a maximum of Rs 10 and no interchange up to Rs 100. However, the acquiring banks are not very happy about the charges and they want to be adequately compensated. The ministry has also interfered and called for a meeting. Now, they have asked SBI to form a group and finalise charges for Aadhaar Enabled Payment System (AEPS) transactions.
I personally feel the current method is simple enough and the proposed process could become complicated. Categorisation on the basis of transaction amount is simpler than categorisation on the basis of merchant category. In this process, nobody will do a proper cost study. As it is, banks do not do a proper cost study. No one knows the exact cost of digital payments.
Your take on the distribution of MDR between acquiring bank and issuing bank
We are very clear on the National Payments Corporation of India’s (NPCI) side that distribution of merchant discount rate (MDR) between issuing bank and the acquiring bank should be equal. With RuPay, we have tried to tweak the fee structure because pricing is in our hands. We charge 60 paise to the issuing bank and 30 paise to the acquiring bank. But regarding the sharing of MDR, banks themselves decide and I understand that 65% goes to the issuer bank and 35% to the acquirer on a thumb rule basis.
Is RuPay the first meaningful challenger to the duopoly of MasterCard and Visa?
The charges on card transactions up to March were waived off by the government, but then there is a cost to the business as well and, even from the perspective of RuPay, we will be breaking even only in 2018-19.
Can banks be trusted to achieve financial inclusion?
Banks also have a moral obligation and social responsibility in promoting digital payments and driving financial inclusion. If they look at it only from the commercial angle, we may not achieve the goal easily. If they look at return on capital in the three to four years’ horizon, then it will never happen. If you look at Bharat QR, then I think the entire cost for all banks put together is around Rs 20-25 crore.
[Copyright By PRATIK BHAKTA, ET BUREAU]