Govt backed RuPay because of its intrinsic value: AP Hota

The National Payment Corp. of India (NPCI) was envisaged as a domestic power house to develop the payments system in India.

It has introduced systems such as Immediate Payment Service (IMPS), which have completely changed the way payments are made in the country. In terms of issuing cards through its RuPay product, the beginning remained tepid, but once Pradhan Mantri Jan Dhan Yojana (PMJDY), government’s financial inclusion scheme, was awarded to it, the numbers boomed.

This, however, didn’t go down well with other card issuers who lost on a huge market.

Chief executive and managing director A.P. Hota rebuts some of the reservations expressed by competitors and other stakeholders.

A.P. Hota, 59A.P. Hota joined National Payment Corp. of India in 2010. He previously worked at the Reserve Bank of India for 27 years, mostly on payments infrastructure. He is an honorary fellow of the Indian Institute of Banking and Finance.

Edited excerpts from an interview:

Other card issuers complain that they are not getting a level playing field. How do you respond to that?

When PMJDY was launched, RuPay was chosen as the default card because of the intrinsic strength of the card as it has been offering an insurance benefit scheme. The government of India wanted a card offering with insurance feature which was readily available with RuPay. Also, other cards issuers for their decades of presence had around 55 member banks issuing cards. RuPay in a short period of three years has 500+ member banks.

Now if PMJDY were to succeed and cards given to all banks, RuPay was the choice.

RuPay could also customize according to the requirement of the government. When the government wanted a Kisan Card, we did it. It will be unfair for others to make such observations. If at all government backed RuPay, it was because of the intrinsic value of the card, which is more suitable for Indian products.

Were other issuers considered before taking a decision? Were they given a chance to customize?

I would not say that they were not considered. All issuers were considered before taking the decision. As far as I know, they pleaded at that time and they were informed why RuPay was chosen. Besides, what is the harm in choosing a national card, a made-in-India card?

After all, the government also has the Make In India scheme, RuPay is also a part of that.

I suppose many of their services charges are still in dollar terms. Can they not be in rupee terms and be customized for India? After RuPay came in, they have started customizing, which is a good thing as competition is always welcome.

In net charges, aren’t their fees comparable with RuPay?

So far as MDR (merchant discount rate) is concerned, it is driven by RBI (Reserve Bank of India) regulations. It is the same for all card issuers. Banks get the same interchange from all as well.

The real differentiator is the fee charged by the card issuer. We charge on a fixed basis—45 paise for ATM transactions, 90 paise (60 paise to issuer bank and 30 paise to acquiring bank) for point of sale and e-commerce transactions. These are transparent charges.

But I guess what they charge differs from bank to bank. It is based on the power of negotiation of individual banks.

The sense I have got is that their charges are on ad valorem basis (in proportion to the estimated value of transaction) and costs are significantly high. They should also bring transparency to their business and then compete.

It is also said that NPCI acts as a pseudo regulator.

It is definitely not a regulator and not part of the government. It is a section 8 company (a firm that cannot pay dividends to shareholders but must plough back surpluses to further its objectives) under the companies law. It is a not-for-profit entity.

Of course, RBI wanted a utility to be created for the country and that is how the NPCI came into being. Through direct and indirect bank membership, we cover almost the entire banking spectrum—commercial, cooperative (regional and rural), foreign banks.

Governance process-wise, we are more transparent than others. We are a not-for-profit entity but that does not mean we do not have surplus, but that is utilized for the development of the payments system. The new initiatives that we are building are funded by the surplus.

Is the aim to become a competitive force overseas as well?

The bulk of our focus is on development of the payments system in India. However, there is a small requirement for international cards, which we have started but right now is at a nascent stage. Over a period of time, we may extend that. But dominantly we remain focused to traditional aspects such as cheque clearing, interbank ATM clearing, national financial switch, and other such processes.