RBI FOR DOMESTIC CARD PAYMENT SYSTEM

Ravikumar.G , Last updated: 28 September 2007
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The Reserve Bank of India (RBI) is in favour of a domestic card payment settlement company to rival the global payment majors Visa and MasterCard. The Indian Banks Association (IBA) had earlier proposed the setting up of a domestic card transaction settlement company called India Pay, following a forecast that card payments in India will increase three-fold in five years. The central bank wants new players to be promoted so as to infuse competition in the card payment market. All card-based transactions are currently settled through the global payment network of Visa and MasterCard. The central bank’s Board for Payment and Settlement Systems observed that nearly 95 per cent of the card-based transactions in the country were domestic in nature, but most of the credit card, debit card and pre-paid cards issued were affiliated either to Visa, Master card or American Express. The RBI has asked IBA to submit a detailed report on the feasibility of setting up an indigenous payment settlement system. A streamlining of card transactions could reduce the cost of operations. The IBA will also examine the feasibility of promoting new entities for developing end-to-end infrastructure on card-based transactions. “We will send a questionnaire to banks to collect basic information on operations, number of cards issued and the cost of operations,” said an IBA official. The IBA has appointed a sub-committee on payment and settlement system to study the commercial viability and financial implications of the India Pay proposal. It will be headed by Sanjay Sharma, IT advisor at IDBI Bank, The sub-committee will collect data on the card base, volumes and profile of transactions, alternate electronic modes of payment and projected growth. It would draw from the experience on other countries such as China to estimate the cost of infrastructure for setting up a domestic payment system. “Once we are able to gather the required inputs, by next month or so, we will have a roadmap,” said Sanjay Sharma, advisor, IT, IDBI Bank. The total spends at point-of-sale (POS) terminals crossed Rs 55,000 crore in 2005-06, with the issue of 18 million credit cards and more than 60 million debit cards. Every transaction involves the payment of a settlement charge to MasterCard or Visa, which amounted to about $50 million during the year. A domestic card payment settlement company would save the outgo on commissions paid to Visa and MasterCard, a senior banker said. Depending on the cost advantage and nature of transactions, different infrastructure could be used, said bankers. For international transactions, the India Pay switch could connect to MasterCard or Visa. The gateway could also interact with payment systems such as China Union Pay

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Ravikumar.G
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RBI FOR DOMESTIC CARD PAYMENT SYSTEM

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