Banks lose Rs 3,800 crore to run current payment infra system: SBI report

After demonetisation, there has been a phenomenal rise in the number of point-of-sale (PoS) terminals to over 28 lakh till July this year from 13.8 lakh in March last year. But, despite the rise in debit and card transactions, factors like low merchant discount rates (MDR), low card usage, poor telecom infrastructure, lack of incentives to merchants to accept cards among others have led to huge losses for banks, ET finds out from the SBI report . Banks are suffering a staggering Rs 3,800 crore loss to run the current payment infrastructure, according to the report. "We believe the current humongous PoS infrastructure that the banks have developed have to be supported wholeheartedly," the SBI report authored by Soumya Kanti Ghosh, the bank's Group Chief Economic Advisor, says. "Though the government has proposed various measures to incentivise PoS infrastructure and banks are installing PoS terminals. But, in the long-run, the business would be viable, only if the transactions at PoS surpass the ATM transactions, an enviable task indeed," the report added.

The payment card industry in India is based on a four-party model which includes the issuing bank, acquiring bank, merchant and the customer. The acquiring bank bears the entire cost to create the infrastructure for PoS terminals, clearing & settlement, merchant training, terminal maintenance, supply of consumables etc. The issuing bank bears the cost of issuing the cards and also manages other risks related to cardholders like failed transactions, frauds, etc.

If the issuing bank and acquiring bank is the same bank, the transactions at PoS are termed as ON-US transactions. While, if the issuing bank and acquiring bank are different entities, then it is known 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 says. "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."