INDUSTRY SURVEY

PAYMENT CARD INDUSTRY 2010

Research

Contents

Page No.

Foreword 1. Credit Cards 2. Debit Cards 3. ATMs 4. Merchant POS Terminals 5. Prepaid Cards 6. M-commerce 7. E-commerce 8. Key Trends

02 03 11 16 20 23 26 29 31

COPYRIGHT INFORMATION:
All information contained in this report is the property of Venture Infotek Global Private Limited. Reproduction of information, tables, charts etc is permitted subject to the condition that the source is acknowledged as follows: Source: Venture Infotek Research

Additional copies:
This report can be viewed on our website: www.ventureinfotek.com/industryresearch.asp Additional copies of this report can be requested by sending an email to sales@ventureinfotek.com The data presented is based on feedback from relevant people in various banks. It has not been validated with actual records. Wherever published information was available it has been used. The views expressed by the bankers might be their own and may be coinciding with that of the Bank. The analysis done is purely on the data collected and the views expressed thereof are on the basis of the analysis. In certain cases, where data was not forthcoming, best effort estimates have been used.

It is indeed a privilege to present the Annual Payment Card Industry Survey 2010. At the outset, we are grateful to all the industry players who have provided us with their valuable time and information towards completion of this survey. The year 2009-10 had been another challenging year for the global economy and financial sector. India, while fundamentally in a much stronger position, has also experienced the impact of these events in many sectors. The number of credit cards in India during the year ended March 2010 declined to 185.46 lakh from the previous year card base of 246.99 lakh. The debit card base increased from 1,374.31 lakh in March 2009 to 1,815.37 lakh by March 2010. The number of credit cards and debit cards together were 2,000.83 lakh as on March 2010 with an increase of over 379.53 lakh cards in the year, registering a growth rate of 23% in the financial year 2009-10. The card acceptance infrastructure has been growing at positive pace, registering a merchant terminal base of about 4.76 lakh and ATM base of over 60,000 in the year. As always, we would like to thank all those who have forwarded us their valuable suggestions, comments and feedback on the surveys conducted till date. We assure you that we will continue our concentrated efforts and strive to maintain the high quality of our survey year on year. About us: Venture Infotek (www.ventureinfotek.com) is Indias premier consumer payment processing company, providing integrated end to end card issuance and payment processing solutions for both issuing and acquiring banks. Venture Infotek manages payment card and other transactions emanating from over 190,000 merchant locations in India. Venture Infotek processed 150 Mn transactions with a commerce value of ` 35,000 Cr. (USD 7 Bn) in the financial year 2009-10. The cards and fulfillment division of Venture Infotek, with the largest state-of-the-art secure card personalization bureau in India has a capacity to personalize around 48 million cards per annum. We have built the Indian card processing industry and today command an impressive share of the market. Since 1997, Venture Infotek has successfully devoted its founding years in building this massive and largely scalable infrastructure for enabling electronic payments in the country. We would like to thank Ms. Kiran Agrawal, Manager and Ms. Rashmi Partoti, Consultant at Venture Infotek for their invaluable efforts in producing this report. We look forward to your suggestions and feedback. Please mail your suggestions to sales@ventureinfotek.com Regards P Ravindra General Manager Venture Infotek Global Pvt. Ltd.

Segment Performance
The growth in issuance of credit cards by banks may not be significant in near future due to uncertain economic conditions at a global level which also has some impact in domestic conditions within the country. Their business is deeply affected as the number of credit card base in India during the year ended March 2010 declined to 185.46 lakh from the previous years card base of 246.99 lakh, registering a negative growth rate of 25%. In case of credit cards, many banks have been closing inactive and unproductive accounts from their credit card portfolio. Also with the increasing delinquency rate in the country, banks and card issuers are likely to remain hesitant in issuing new credit cards. Hence there is a negative growth rate in credit card segment. Besides, it does not make any business case for the banks to maintain inactive accounts in their systems as it adds avoidable maintenance cost and space in their systems. The market recently witnessed issuance of lifetime free credit cards come to an end from a leading private sector bank and others following the same. Banks are shifting their focus off from mass marketing and catering to premium segments. It is predicted that the year 2010-11 may reinstate consumer confidence in the usage of credit cards which may result in increase of card base to about 210 lakh by March 2011.

Chart 1: Growth in Credit Cards Issued (No. of cards in Lakh)

Market Share
This year ICICI Bank, HDFC Bank, SBI and Citibank top the list with a combined market share of 72% in the Indian credit card industry. HDFC Bank comes close to ICICI Bank as the latter reduced its card base drastically from 72 lakh in 2009 to 45 lakh in 2010. Following the list is SBI, Citibank and Standard Chartered with market share of 14%, 11%, and 6% respectively.

Table 1: Market Share of Individual Players (Number of Credit Cards in Lakh)

Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

March '09 Banks Rank ICICI HDFC SBI Citibank Standard Chartered HSBC RBS Axis Bank Barclays Bank Deutsche Bank Vijaya Bank Andhra Bank Bank of India Canara Bank Bank of Maharashtra BOB Cards Kotak Mahindra Bank Central Bank of India Syndicate Bank Union Bank of India J&K Corporation Bank Others Total 1 2 4 3 7 5 6 9 8 10 14 11 12 15 16 18 13 19 17 20 21 22 No. of Cards 72.80 44.00 27.00 38.00 13.00 15.00 13.05 5.43 6.00 3.50 0.83 1.63 1.55 0.80 0.72 0.60 1.00 0.50 0.64 0.30 0.24 0.23 0.17 246.99

March '10 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 No. of Rank Cards 45.00 1 43.00 1 26.62 2 19.50 3 11.00 4 10.00 5 9.00 6 6.00 7 3.60 8 2.25 9 1.48 10 1.25 11 1.15 13 0.90 12 0.80 15 0.71 16 0.70 14 0.69 14 0.68 17 0.38 14 0.28 18 0.27 19 0.20 185.46

March '11
(Estimated)

No. of Cards 49.00 49.00 30.00 23.00 13.00 12.00 9.00 8.50 2.40 2.25 1.58 1.55 1.25 1.50 0.90 0.80 1.00 1.00 0.72 1.00 0.32 0.31 0.50 210.58

Chart 2: Comparative Market Share of Individual Players

Sector Wise Market Share of the Banks

Even though, the market share of private banks has increased to 51.21% in 2010, from 49.99% in 2009, there is a fall in their credit card base. In 2009, the total number of credit cards issued by private banks in India stood at 123.47 lakh, while in 2010 it fell to 94.98 lakh. The market share of foreign banks decreased from 35.85% in 2009 with a card base of 88.55 lakh to 29.84% in 2010 with 55.35 lakh cards. While card base for public sector banks marginally increased to 34.93 lakh in 2010 from 34.80 lakh in 2009, their market share increased from 14.09% in 2009 to 18.84% in 2010.

Chart 3: Analysis in terms of Public Sector, Private and Foreign Banks

Table 2: Analysis in terms of Public Sector, Private and Foreign Banks

(No. of Cards in Lakh)

March '09 Banks No. of cards Public Sector Banks SBI Vijaya Bank Andhra Bank Bank of India Canara Bank Bank of Maharashtra BOB Cards Central Bank of India Syndicate Bank Union Bank of India Corporation Bank Total Private Sector Banks ICICI HDFC Axis Bank Kotak Mahindra Bank J&K Total Foreign Banks Citibank Standard Chartered HSBC RBS Barclays Bank Deutsche Bank Total Others Others Total Grand Total

March '10 No. of cards

March '11 (Estimated) No. of cards

27.00 0.83 1.63 1.55 0.80 0.72 0.60 0.50 0.64 0.30 0.23 34.80 72.80 44.00 5.43 1.00 0.24 123.47 38.00 13.00 15.00 13.05 6.00 3.50 88.55 0.17 0.17 246.99

26.62 1.48 1.25 1.15 0.90 0.80 0.71 0.69 0.68 0.38 0.27 34.93 45.00 43.00 6.00 0.70 0.28 94.98 19.50 11.00 10.00 9.00 3.60 2.25 55.35 0.20 0.20 185.46

30.00 1.58 1.55 1.25 1.50 0.90 0.80 1.00 0.72 1.00 0.31 40.61 49.00 49.00 8.50 1.00 0.32 107.82 23.00 13.00 12.00 9.00 2.40 2.25 61.65 0.50 0.50 210.58

Credit Card Spends

Along with the fall in credit card base, the credit card spends also declined, unlike last year. Despite Indian economy registering a rise in GDP, consumers seem to have been cautious in using a credit card for making purchases. The banks this year have been de-risking their portfolios and have removed several inactive cards from the market. Fearing the rise in NPAs, banks also reduced the credit limit even for the customers who have never been on their defaulters list and resultantly lowering the credit card spends. The credit card spends at merchant POS terminals decreased by 3%; from ` 65,356 Crore in 2009 to ` 63,327 Crore in 2010. In the previous year, despite the fall in credit card base, the credit card spends had shown a positive growth of 13%.

Chart 4: Growth in Value of Credit Card Transactions (Value ` in Crore)

Table 3: Industry Credit Card Spends at the POS Terminals (Amount ` in Crore)
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 ICICI HDFC SBI Citibank Standard Chartered HSBC RBS Axis Bank Deutsche Bank Barclay's Bank Bank of India Vijaya Bank Andhra Bank Kotak Mahindra Bank Bank of Maharashtra BOB Cards Canara Bank Central Bank of India Syndicate Bank Corporation Bank Union Bank of India J&K Others Total March '09 Rank 1 2 4 3 7 5 6 8 9 10 13 11 12 14 16 17 15 18 19 20 21 22 Spends 20,600.00 11,200.00 7,182.76 10,055.15 3,439.92 3,969.14 3,573.06 1,371.00 926.13 600.00 327.74 474.24 344.51 264.61 190.52 158.77 225.67 132.30 96.73 77.12 68.44 28.00 50.00 65,355.80 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 14 15 16 17 18 19 20 21 March '10 Spends 16,600.00 15,750.00 9,200.00 6,690.00 3,600.00 3,400.00 2,980.00 1,400.00 700.00 500.00 341.75 320.48 292.26 250.00 250.00 240.00 200.96 166.31 113.83 98.11 84.25 80.44 68.91 63,327.30 March '11
(Estimated)

Banks

Rank 1 1 2 3 4 5 6 7 8 9 11 12 13 14 16 18 10 17 19 20 15 21

Spends 17,100.00 17,100.00 10,500.00 8,000.00 4,550.00 4,200.00 3,000.00 1,600.00 780.00 650.00 400.00 390.00 350.00 300.00 290.00 250.00 450.00 260.00 130.00 100.00 300.00 90.00 150.00 70,940.00

ICICI Bank, despite reporting a fall in its credit card base, still tops the list in credit card spends at the POS terminals, followed by HDFC Bank.

Average

Average Annual Credit Card Spends

Even though, the total credit card base and credit spends have declined, the average annual credit card spends per card has increased significantly to ` 34,569 in 2010 from ` 26,461 in 2009, reporting a growth rate of 31%, being 5% higher than that of 2009 (26%).

Chart 5: Growth in Annual Average Credit Card Spends per Card (in `)

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Segment Performance
The debit card market has been seeing a remarkable growth over the years in Indian payment card industry. The number of debit cards issued by banks increased from 1,374.31 lakh in 2009 to 1,815.37 lakh in the year 2010 registering a growth of 32%. In the year 2010-11 the debit cards are expected to grow further at the same rate and reach a card base of over 2,400 lakh cards. With most of the banks, particularly PSU banks, having brought all or most of their branches into Core Banking, issuance of debit cards goes almost with every Savings Bank account. It does not add any credit risk and saves transaction costs to a great extent when compared to brick and mortar banking transaction. These are few of the major reasons for the remarkable growth in debit cards. When compared with the customer base of banks in savings accounts the present debit card base is still very small and there is great potential for further growth. However, the great challenge is moving the customer from ATM to POS transactions. It has also been observed that debit card is also emerging as a preferred transaction tool for ecommerce payments. Meanwhile banks have also been attracting consumers to choose debit card as a mode of payment by introducing various schemes like cash back offer on purchases at certain places and discounts at retail outlets.

Chart 6: Growth in Debit Cards Issued (No. of Cards in Lakh)

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Market Share
In 2010, the top three performers in the debit card market in India remain the same. State Bank of India again emerged as the leader with a card base of 554 lakh, depicting a growth of 31% from 2009. ICICI Bank is in the second position with 160 lakh debit cards and followed by Axis Bank with 147 lakh cards in the market.

Table 4: Debit Card Market Share of Individual Players (No. of Cards in Lakh)
March '11
(Estimated)

Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

March '09 Banks Rank State Bank of India ICICI Bank AXIS Bank HDFC Bank Punjab National Bank Canara Bank Syndicate Bank Union Bank of India Bank of India Bank of Baroda Andhra Bank Corporation Bank IDBI OBC Karur Vysya Bank Ltd. SCB Bank of Maharashtra Vijaya Bank Central Bank of India South Indian Bank Dena Bank Kotak Mahindra Bank UCO Bank J&K Bank RBS HSBC Citi Bank Indusind Bank Yes Bank Barclays Bank Others Total 1 2 3 4 5 6 10 11 9 8 7 9 12 13 14 15 16 20 25 17 19 18 23 22 21 24 24 26 27 28 No. of Cards 406.00 140.00 117.00 90.00 67.00 57.50 30.16 29.00 32.00 35.00 40.78 32.00 24.00 13.72 13.12 13.00 8.16 7.06 4.21 8.00 7.16 7.23 5.32 5.80 6.60 5.00 5.00 2.70 0.95 0.65 160.19 1,374.31

March '10 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 20 21 22 23 23 24 25 26 27 28 No. of Cards 554.00 160.00 147.00 122.00 100.00 49.96 48.63 47.66 46.00 45.95 45.00 36.00 29.00 18.43 17.00 16.50 12.66 11.35 10.22 10.00 10.00 9.50 8.61 7.00 7.00 6.50 6.50 4.41 3.00 0.70 224.79 1,815.37

Rank 1 2 3 4 5 10 9 6 7 8 11 12 13 14 15 17 18 16 20 19 22 23 21 24 26 25 26 27 28 29

No. of Cards 800.00 183.00 166.00 155.00 150.00 55.00 60.00 95.00 65.00 64.00 50.00 40.00 35.00 24.00 22.00 19.00 17.00 20.00 15.00 16.00 12.00 11.00 13.00 9.00 7.00 8.00 7.00 5.74 4.00 0.75 305.85 2,434.34

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SBI emerges as the leader in debit card issuance enjoying a market share of 30%, followed by ICICI Bank with a market share of 9% and Axis Bank with 8%.

Chart 7: Comparative Market Share of Individual Players

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Debit Card Spends

The debit card spends at merchant POS terminals increased significantly by 42% to ` 26,418 Crore during the year 2010 from ` 18,547 Crore recorded in the previous financial year. There is a considerable rise in spends through debit cards. This surge in debit card usage can be attributed to the economic slowdown and the cautious attitude of individuals towards spending money and also large number of debit cards issued by all the banks to their account holders. Consumer prefers to spend more from their own savings rather than borrowing from any channels. Moreover, it has been noted according to a market research on Indian Payment Industry that credit cards is a favoured form of payment only in the top 10 cities in India, while debit card transactions are likely to prevail elsewhere.

Chart 8: Growth in Value of Debit Card Transactions (Value ` in Crore)

(Source: RBI Bulletin)

Average Annual Debit Card Spends

In the financial year 2009-10, the average annual debit card spends per card at merchant POS terminals increased by 8% to ` 1,456 from ` 1,350 in the year 2008-09. However this growth of 8% seems to be low when compared to 10% growth rate in the year 2009 and 12% growth rate in the year 2008. Also the annual average spend per card on debit card is much lower than that of credit card.

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While the average credit card spends per card stood at ` 34,569 in 2010, the average debit card spends per card is merely ` 1,456. With vast difference in the two, and keeping the number of credit cards being considerably less than debit cards in the market, one can safely conclude that debit cards are not the preferred mode of payment by Indian consumers at the POS terminals. The greater challenge lies in converting cash transactions at ATMs with debit cards into POS transactions at the merchant locations

Chart 9: Growth in Annual Average Debit Card Spends per Card (in `)

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Segment Performance
Banks are of the belief that ATMs are integral part of their branding and therefore most of them are trying to increase their ATM base significantly. ATMs are becoming more interactive, and might turn into mini branches with more facilities are being offered at the ATM location. In March 2010, as per NPCI, the number of ATMs had reached 56,711. However, this count shows merely the banks which are linked with NPCI platform of National Financial Switch. The total number of ATMs in the country as on March 2010 is over 60,000, reporting a growth of 39% from the year 2009. In the next financial year 2010-11, ATMs are expected to increase by 30% reaching a base of over 78,000. However, the study is limited to the ATMs of commercial banks and not covering the ATMS of Co-op. Banks.

Chart 10: Growth in No. of ATM Outlets

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Market Share
SBI tops the list again with the highest number of ATM in the country with 16,294 ATMs. It constitutes to 27% of the market share. ICICI follows the chart with 5,219 ATMs and enjoys a market share of 9%. Next is SBI Associate Banks with 5,191 ATMs consisting 8% of the market share. Axis Bank comes in 4th position with 4,293 ATMs and close to it is HDFC Bank with 4,232 ATMs, both with a market share of 7% each.

Chart 11: Market Share of Individual Players

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Table 5: Market Share of Individual Players

Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39

March '09 Banks Rank State Bank of India ICICI Bank SBI Associates Axis Bank HDFC Bank PNB Union Bank of India Canara Bank Bank of Baroda IDBI Bank Syndicate Bank Corporation Bank Indian Bank OBC Andhra Bank Bank of India IOB Federal Bank Indusind Bank Kotak Mahindra Bank UCO Bank Citibank Vijaya Bank Dena Bank CBI Karur Vyasya Bank South Indian Bank ING Vyasya Bank Bank of Maharashtra J&K Bank United Bank of India SCB Karnataka Bank Allahabad Bank Yes Bank HSBC DCB Deutsche Bank Barclays Bank Others Total 1 2 5 3 4 6 8 7 9 12 10 11 15 13 14 18 17 16 22 21 19 23 22 21 20 26 27 24 25 28 29 32 34 30 31 33 35 36 No. of ATMs 8,548 4,713 2,791 3,595 3,295 2,150 1,790 2,019 1,179 900 1,090 1,032 755 845 778 500 576 617 364 387 414 359 364 387 400 324 280 351 345 250 226 188 171 211 190 178 112 NA 11 966 43,651

March '10 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 No. of ATMs 16,294 5,219 5,191 4,293 4,232 3,544 2,326 2,016 1,362 1,201 1,187 1,145 1,007 1,000 859 820 771 732 497 492 478 450 446 425 402 376 373 357 345 292 283 242 217 211 206 185 110 23 17 1,000 60,626

March '11
(Estimated)

Rank 1 3 2 4 5 6 7 8 9 10 11 12 11 13 15 10 14 16 17 19 20 18 21 22 14 23 21 24 25 26 27 28 29 31 30 32 33 35 34

No. of ATMs 24,000 5,750 7,500 5,200 5,000 4,000 3,750 2,100 1,520 1,500 1,300 1,270 1,300 1,200 950 1,500 1,000 850 600 520 500 560 480 460 1,000 430 480 397 350 320 310 305 300 215 220 190 114 30 47 1,100 78,618

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As per the data of World Bank and CGAP the number of ATM units per million people in India is 35. It is just half of China where the number is 70 units per million people. The comparative figures on density of ATMs in some of the Asia Pacific and other countries are as follows:

Table 6: Country wise ATM Density

Country Taiwan Thailand Singapore Malaysia Australia Indonesia Philippines Sri Lanka China India Pakistan Nepal ATM units per million people 1,336 655 506 432 159 134 134 104 70 35 34 11

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Segment Performance
The Merchant Point of Sale (POS) Terminals in India have increased by 12% in 2009-10 as against 9% recorded last year. The number of POS terminals in the country at the end of March 2010 was over 4,76,000. The slow growth in the year 2009-10 is attributed to the strategic decision taken by some of the major banks in weeding out inactive and unproductive merchant terminals from the market.

Table 7: Market Share of Individual Players

March '09 Banks Rank AXIS Bank ICICI Bank HDFC Bank HSBC Citibank IDBI BOB Cards Corporation Bank Andhra Bank J&K Bank SCB DCB Bank of India Vijaya Bank Union Bank of India Canara Bank Central Bank of India Yes Bank Indian Overseas Bank OBC Deutsche Bank PNB Syndicate Bank Total 2 1 3 4 5 7 6 8 11 9 10 13 12 14 15 16 No. of Terminals 114,500 180,000 70,000 15,000 12,500 6,754 12,311 NA 3,783 1,958 2,083 2,269 1,640 1,736 1,353 751 79 426,717 March '10 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 17 18 19 20 21 21 No. of Terminals 160,900 150,000 90,000 16,000 13,500 10,900 10,000 5,000 4,000 2,600 2,500 2,100 1,800 1,700 1,600 1,300 800 800 500 400 150 100 100 476,750 March '11
(Estimated)

Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Rank 1 2 3 5 6 4 8 7 10 12 13 15 11 17 9 16 9 10 18 14 20 8 19

No. of Terminals 200,000 170,000 110,000 17,000 14,500 20,000 7,000 10,000 4,500 2,900 2,800 2,000 3,000 1,450 5,000 1,500 5,000 4,500 1,000 2,300 200 7,000 300 591,950

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The year 2010-11 will witness the entry of new banks into Merchant Acquiring business. SBI is intending to install about 1,50,000 POS terminals. South Indian Bank and Indusind Bank are also following the league with a target of 1,500 and 5,000 terminals respectively by the end of next year.

Chart 12: Comparative Market Share of Individual Players

Chart 13: Bank Wise Growth of Merchant POS Terminals

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Total Spends of Debit & Credit Cards at Merchant POS Terminals

The total spends with credit and debit cards at merchant POS terminals increased during the year from ` 83,903 Crore in 2008-09 to ` 89,745 Crore in the year 2009-10, reporting a growth of merely 7% compared to 19% growth registered in the previous year.

Chart 14: Growth in the Value of Debit & Credit Card Transactions at ME POS Terminals (` in Crore)

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Pre-paid Payment Instruments

Pre-paid payment instruments are payment instruments that facilitate purchase of goods and services against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holder, by cash, by debit to a bank account, or by credit card. The pre-paid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instruments which can be used to access the pre-paid amount. The pre-paid payment instruments that can be issued in the country are classified under the three categories viz. (i) Closed system payment instruments (ii) Semi- Closed system payment instruments and (iii) Open system payment instruments. (i) Closed System Payment Instruments: These are payment instruments issued by a person for facilitating the purchase of goods and services from him/it. These instruments do not permit cash withdrawal or redemption. As these systems do not facilitate payments and settlement for third party services, issue and operation of such instruments are not classified as payment systems. (ii) Semi-Closed System Payment Instruments: These are payment instruments which are redeemable at a group of clearly identified merchant locations / establishments which contract specifically with the issuer to accept the payment instrument. These instruments do not permit cash withdrawal or redemption by the holder. (iii) Open System Payment Instruments: These are payment instruments which can be used for purchase of goods and services at any card accepting merchant locations (point of sale terminals) and also permit cash withdrawal at ATMs.

As per RBI regulations, only banks are permitted to issue all categories of pre-paid payment instruments. Our study is limited to prepaid cards issued in the banking sector under open system payment instruments

Emerging Industry
Prepaid Cards market in India is still at a nascent stage. The market for prepaid cards is currently highly under-penetrated in India. No standard industry figures are available about the size or growth rate of the prepaid market, but estimates suggest that the industry is growing rapidly and represents a substantial market opportunity. In 2010, the market is expected to double from ` 45 Bn to ` 90 Bn of spends. We expect that the market to pick up around FY12 through increased focus of banks on prepaid cards. Among many players in the market, ICICI Bank has about 20 lakh prepaid cards, Axis Bank has around 10.82 lakh, State Bank of India has about 8.40 lakh, and IDBI Bank has approximately 5 lakh cards issued in the market as of March 2010.

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Some of other players in this market are Corporation Bank, Union Bank of India and Central Bank of India with about 0.10 lakh, 0.06 lakh and 0.03 lakh prepaid cards respectively. The banking sector has been on the course of risk aversion, thereby reducing issuance of credit cards and in order to boost organic growth, banks have diverted to this safer option open prepaid cards. Bank of India, Andhra Bank, Barclays and HSBC are few other banks, which are weighing the option of foraying into this sector. India is said to be an emerging prepaid market with tremendous potential for growth and financial inclusion. With a population base of about 1.18 billion, the country has only 20% of the adults access to any payment card system. The rest 80% do not even have access to a savings account. In the country, 80% of the business transactions take place in cash form and it is strongly believed by industry experts that prepaid card will replace it soon. Plastic money seemed to have taken quite a grip in the Indian payment industry and now it is the prepaid cards that will command the reign. Banks are foraying into prepaid cards which are often issued as travel cards, gift cards, pension cards, payroll cards, utility bill payment cards etc. Across the world, prepaid cards are also used as a means to give money to children and teach them money management. It is an easy way thorough which parents can set control on what money can be spent on. Greater efficiency, simplicity, and availability of the prepaid debit card have also stimulated its popularity.

Travel Cards
Travel Cards are the potential payment instruments for the Outbound Indian Travelers. These cards are issued to the Outbound Indian Travelers in different destination currencies. The following are the drivers for the Outbound Indian Travelers. Economic and Industrial growth Increase in investments abroad by corporate India Increase in consumerism across Indian society Growing demand for leisure travel like honeymoons and cruises Increased disposable incomes and spending power Growth of the DINK (dual income no kids) segment Large section of population fluent in English and comfortable with travel abroad Entry of newer competitive international airlines and the slashing of air fare rates Increased marketing by foreign destinations Simplified visa procedures by foreign tourist offices

Table 8: Growth of Travel Cards

Details Total outbound tourism spends - ` Mn. Growth% % of Spends by Cards Amount of Spends by Cards - ` Mn. Average Card Load per annum - ` Number of Travel Cards Mn March 09 4,42,800 20% 25% 1,10,700 60,000 1.8 March 10 4,95,936 12% 30% 1,48,781 65,000 2.3 March, 11
(Estimated)

5,65,870 14% 35% 1,98,055 70,000 2.8

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Corporate usage accounts for over 80% of the volume in travel cards and within the corporate sale segment, the IT industry accounts for 70% of the sale of travel cards. Travel cards are used primarily for cash withdrawals overseas. Cash withdrawal accounts for 60% of the overseas transactions using travel cards and the remaining 40% are POS transactions

Gift Cards, Payroll Cards & Pension Cards

Currently, we estimate 5 lakh gift cards in India in FY10 while industry sources estimate the market potential to be sale of 3 lakh cards per month On observing the phenomenon of gift cards in geographies like Canada - in 2003, just over a third of retailers in Canada offered gift cards and then there was an explosion of gift cards onto the retail scene. According to Statistics Canada, 82 per cent of retailers were in on the gift-card game by end 2006. A survey by the U.S. National Retail Federation in 2007 suggested that 8 out of 10 people would include gift cards among their holiday shopping purchases. The main reason being convenience. Similar trend is predicted in growth of gift cards in India in near future and the market for gift cards to gain traction in FY12 There are nearly 2 Mn pensioners in the military sector alone and around 1.9 Mn pensioners in the central government sector. There is a huge opportunity for usage of cards for withdrawal of pensions which is currently lying untapped. India is currently estimated to have a total workforce of 500 Mn, which is expected to grow by 20 Mn every year over the next 10 years. India has the potential to account for onefourth of the overall workforce across the world by 2022. Payroll cards are a convenient means of salary disbursal amongst blue collar workers instead of cheque / cash. HR Consulting & Outsourcing companies are also promoting card based salary disbursal Since payroll and pension cards are new in the market, the market for these cards is expected to gain traction by FY12.

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Segment Performance
India currently has the second largest telecommunication network in the world after China. The number of mobile subscription has crossed a mark of 600 million in March 2010; however this growth is mostly skewed towards urban areas. As rural tele-density still remains very low, mobile phones seem to have gained higher penetration than internet in India and therefore majority of the population is readily accepting Mobile Commerce (M-commerce). Majority of the Indian population who neither had a landline phone nor a bank account not only own a mobile phone now but are well poised to transact on their mobile phones. Mobile penetration is at ten times that of PC penetration in the country. This high rate of mobile penetration will help in reaching under-banked and non-banked areas and thereby contribute to the financial inclusion process. Dr. K. C. Chakrabarty, Deputy Governor of RBI opines that M-commerce is an area which is rapidly changing the way people conduct their financial transactions. Besides this, it is an area that offers abundant scope for inclusive growth. It is also an area that presents new challenges to the regulators across the globe. M - Commerce can be broadly divided into two categories: 1. Mobile Banking 2. Mobile Payments (A sub-set of Mobile Banking, which is offered by Banks) Mobile Banking comprises of the following : 1. 2. 3. 4. 5. 6. Provisioning and availability of banking and financial services Conducting bank and stock market transactions Mobile remittances, micro-finance and micro-payments Placing orders and making payments through SMS Issuing instructions to pay monthly utility bills Banking alerts, banking requests, salary credit

Mobile banking offers the facility of accessing banking products, which includes payments/remittances from bank account to bank account either inter-bank or intra-bank. Mobile Payments covers the following four types of payments: 1. Business to Consumer (B2C) Mobile Payments: The defining feature of B2C Mobile Payments are integration onto the mobile handset interface, and payment for direct acquisition of goods and services. B2C Mobile Payments can be further divided into the following four categories: a) Purchase of Goods & Services from Physical Merchants b) Physical Bill Payments c) Purchase of Goods and Service from Remote Merchants (Non Internet Mobile Commerce) d) Remote Bill Payments (Non Internet Mobile Payments)

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2. Business to Business (B2B) Mobile Payments: a) Mobile transactions to supplement or extend existing transaction practices largely being driven by telecommunications fixed mobile convergence b) Facilitate business process c) Encompasses specific industry solutions ( eg. Logistics processes utilizing technologies to track and pay for shipments & inventory), third party platform aggregation and billing solution, including payment gateways who do not themselves own the content, but provide platforms for accessing content 3. Consumer to Consumer (C2C) Mobile Payments: a) Transaction directly between end-customers on a platform established specifically for the exchange e.g. eBay 4. Peer to Peer (P2P) Mobile Payments: a) Private transactions between two individuals (usually SMS based) b) They involve transactions like M-Banking transfer of funds

Global M-commerce market

As per the estimates of Gartner, there were 74.4 Mn people using mobile devices to purchase goods and services worldwide by the end of 2009, and predicted that number would be more than double by the end of 2012 globally. ABI Research expects 407 Mn people worldwide to use mobile banking by 2015. Worldwide, Mobile Commerce is expected to grow to US$ 119 Bn by 2015. In Japan, which has one of the most vibrant mobile markets, mobile commerce exceeded $10 Bn in 2009 Worldwide, the number of mobile-banking users grew from 24.4 Mn in 2008 to 52.1 Mn in 2009. Half of those users were in the Asia-Pacific region. The biggest share of mobile payment users is expected to be in the Asia/Pacific region and Japan through 2012, followed by Eastern Europe, the Middle East and Africa and Latin America. Behind those regions will be the U.S. and Western Europe. Mobile commerce tripled in the United States in 2009, but still only constituted a US$1.2 Bn market. There is huge potential for growth in the U.S. In Europe, the adoption has been slow with mobile payments barely moving beyond the trial stage. Japan and Korea, global market leaders in adoption of digital technologies, have also shown high adoption of mobile payments. Hong Kong, Singapore and Taipei have a high penetration of mobiles but have shown little adoption of mobile payments , except in the use of contactless cards for transportation and some limited retail usage.

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The large but less developed markets of China, India, Indonesia and Philippines are demonstrating a quick adoption across a large range of M-payment areas such as remittance, bill payment to M-Ticketing . Though the usage in India is currently limited largely to Mobile Recharge (M-Top Up), Thailand, Malaysia and Vietnam have a strong adoption of mobile payments for top-up and gaming but less extensive adoption in traditional areas like M-Banking. More than 90% growth in M-commerce is expected in the APAC region in the next few years

M-commerce in India
In India, Mobile Commerce is still a nascent market. There are currently just over 5 Mn Mcommerce users in India. RBI has been taking several initiatives to fillip the growth of M-Commerce such as raising the daily transaction limit to ` 50,000. More than half of Asia's mobile banking customers in 2009 were in India. Celent expects the penetration of India's active mobile banking user base to reach 25 Mn by 2012 from 2.5 Mn in 2009. With barely 40% of its population engaged in formal banking, India has the second highest number (after China) of financially excluded households in the world about 135 Mn. India has close to 6,00,000 villages. The high penetration of mobile phones in rural areas makes mobile banking one of the less expensive and convenient modes of financial inclusion. Out of 32 banks that have been given approval to provide mobile banking facility in India, only 21 banks have started providing the services. The Indian customer has been slow in adoption of MCommerce due to low awareness, low spread of M-Commerce across merchants and security concerns on usage. Banks and Telcos are exploring ways to work together to get RBIs approval and provide mobile based banking convenience and tap the large unbanked segment. It is expected that the market for mobile commerce in India to gain traction in the next two -three years.

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Segment Performance
E-commerce has been trying to replace the traditional method of retailing. Some have accepted it easily but majority have not, probably because of lack of supporting and secured infrastructure or are just not technological savvy. No standard industry figures are available about the size or growth rate of the E-Commerce market, but estimates suggest that the industry is growing rapidly and represents a substantial market opportunity. The Internet commerce industry is dominated by the Online Travel Industry which includes Railway, Airlines, Hotels, Travel Aggregators and Tour Operators. As of December 2009, E-commerce market in India was worth around ` 9,500 crore, out of which pure play online shopping market was worth ` 1,300 crore. While online shopping at global level is growing at around 8%-10%, in India, it is growing at the rate of 30%. (Source: Economic Times) By March 2009 the value of E-commercs reached ` 12,000 Crore and by the end of 2010 it crossed ` 15,600 Crore registering a growth rate of 30%.

Chart 15: Growth in Value of E-Commerce (` in Crore)

The year 2009 witnessed 74% of the E-commerce industry being driven by Online travel industry. Etailing comprised of 12%, Online classifieds 10%, Online Subscription 1% and Digital downloads on mobile 3% of the total E-commerce industry.

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Chart 16: Percentage contribution by categories in E-commerce

It is said that while brick and mortar banking, credit cards, and paper transactions will continue to be the industrys main revenue drivers, mobile payments, e-commerce and debit cards will provide the fastest growth opportunities. In India, the growth in middle class with rise in average income is indulging themselves in obtaining services which takes less time, therefore transacting online and on mobile.

Global E-Commerce Market

Chart 16: Growth in retail e-commerce worldwide ($ in Bn.)

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(Compiled by P. Ravindra)

1. Drivers for the payment systems industry

As per the Vision Document of RBI on Payment Systems in India for the period 2009-12, released on February 16, 2010, the scope has been enhanced to ensure that all the payment and settlement systems operating in the country are safe, secure, sound, efficient, accessible and authorised. Smooth functioning of payment systems becomes vital in the light of interlinkages they have with other financial systems. The Reserve Bank of India shall continue its initiatives for ensuring smooth operations and proper conduct of the payment systems. The National Payments Corporation of India (NPCI), set up by the Reserve Bank of India as an umbrella organisation for operating and managing retail payment systems, has the envisioned role to look at future innovations in the retail payment space in the country. According to a report published by McKinsey on Indias emerging payments market in September 2009, Indias payment industry earned revenues of nearly $ 14 billion. Payment flows were 7.8 times the GDP. A noticeable trend according to the report was that majority of the payment flows occur to and within the business sector. Indias payments industry ranks fifth among Asian countries by revenue. It is expected that by 2015, most of the revenue will be earned through mobile payments growing with a rate of 51%, followed by debit and prepaid cards growing with a rate of 42.9% annually. According to the report, three trends appear to be shaping Indias payments industry: growth in electronification, increasing regulatory oversight and business models. Technology plays a great part in developing a payment infrastructure. More important is the rate of adaptability by players in the card payment industry who seem to be accepting it readily. It is believed that with the rise in affluent middle class and a growing organized retail industry, it is likely to increase consumer electronic transactions from about 3% to 15% of total transaction value by 2015. New business models which introduce intermediaries in the payments value chain to make it more effective and efficient is on the rise. Trends like outsourcing POS network, outsourcing set up of ATMs is on the rise. Several non-banking participants emerge as they take up a role in the consumer card payments. Bill pay aggregators, technology providers, and transaction processing firms are few examples. Several non-banking firms form alliance with banking firms to participate in consumer card products as there are certain regulatory restrictions for other than financial institutions to participate in payment systems.

2. Merchant space in India

Over the years, merchants in India have become a very important part of the value chain in the payment card industry. With fortunes locked up at the bottom of the pyramid, every business has been looking towards the semi-urban and rural market of India. Several SMEs in India still deal with cash transactions, especially very much in semi-urban and rural markets. Banks in turn either pressurise or insist these SMEs who generally have a current account, or have taken up loan from the bank to install POS terminals at their outlet/shop. Banks in turn expand their reach to greater geographical area, whereas merchants get an easy way out of handling large amount of cash.

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Despite the infrastructural hurdles in deploying POS terminals across India, the business has taken up a huge leap with not only banks eager to increase their terminals but also merchants noticing the trend shifting towards plastic money. With RBI now allowing cash withdrawal at POS terminals, several SMEs have an option of becoming a player in the payment card industry and earn extra to their income. Further, with very large banks like SBI and Punjab National Bank entering into the merchant acquiring space, there will be exponential growth in the next 3 years in the number of POS outlets in the market.

3. Trend of outsourced vs. in-sourced market for Payment Card Industry

The trend of banks moving more towards outsourcing in the payments card industry is increasing in the areas of acquiring processing, credit card issuance processing, debit card reconciliation and ATM Managed Services. Even banks which had their processing in-house or were managing these functions in-house are moving towards outsourcing and focusing more upon their mainstream banking business. By doing so, banks will not only save time but will also be able to experience cost efficiencies and economies of scale at an early stage. During the year ICICI Bank hived off their acquiring business from their mainstream banking by setting up a Joint Venture with one of the MNC Service Providers. SBI has also ventured into a Joint venture with Multi National Entities to enter into merchant acquiring business. The trend is more in this direction for few other banks. The driving force for such a trend is that banks are realizing that POS network can be used for many activities beside accepting payments or providing cash withdrawals. With innovative technologies entering into the market, POS platform will not only provide with hassle free transactions but also allow a gamut of value added services like mobile recharge, pre-paid DTH vouchers, long distance calling cards, internet broadband vouchers, payment of utility bills and money transfers for bill payments by customers to merchants and much more. Every bank is well aware of the benefits that it will earn them with such value added services. Not only they will be able to earn through all the payments but also improve upon their CASA ratio as the merchant will be required to open a current account with the acquiring bank. Presently, about 80% of the services of POS terminals are outsourced. With the growing spread of retail banking, it is expected that banks will increase focus on their retail products such as credit cards. Many banks which were earlier not focused on the retail products portfolio are expected to now drive focus on the same to attract and retain customers. Outsourcing credit card issuance processing will enable these banks to become feature rich, operationally efficient and less lead time to go to market when the card base and transactions are low. We predict that the percentage of outsourced credit cards issuance services to increase from 16% of the total credit cards market in FY10 to 65% in FY14. With the increase in usage of debit cards at POS terminals and ATMs, accurate and speedy reconciliation of debit card transactions is becoming important for banks. With end-to-end automation being offered by service providers and large transaction volumes for debit cards, it is predicted that banks may move from in-house reconciliation to outsourcing their reconciliation processing. This will enable banks to have access to latest technologies for an operationally efficient reconciliation of transactions and reduce risk of errors. The percentage of outsourced debit card services may increase from 23% of the total debit cards in the country in FY10 to 75% of the total debit cards in FY14.

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4. Debit card transactions at POS terminals

On an average, there were 12 transactions at ATM per debit card per annum in FY08. 70% of transactions at ATMs in India are financial transactions. Banks are putting their efforts to make their customers to shift their debit card transactions from ATM to POS for cost effective banking transactions. It is evident from enhanced focus of banks on debit cards with special promotions on debit card usage at POS terminals, increasing POS infrastructure availability and cash withdrawal facility at POS locations with debit cards. As per market estimate, there would be a six fold increase in number of debit card transactions at POS and the annual average debit card usage at POS will rise from 1 transaction per debit card at POS in FY10 to 6 transactions in FY14. The debit card transaction value at POS terminals stood at ` 26,418 in the year 2009-10 and has been growing at a CAGR of 33% per annum. The average annual per card usage is also growing at a CAGR of 5% per annum.

5. Trends in ATM banking channel in India

ATMs have already turned out to be more than a quick stop to withdraw cash. Presently, ATMs also offer facilities of balance enquiry, mini account statements and PIN change. Some banks are offering services of transfer of funds, recharge mobiles, payment of insurance premium, utility bill payments etc. through ATMs and there by acting as mini branches for customer convenience. A new concept called Lobby banking or lounge banking is being promoted by few banks. Banks believe that customers should interact for more banking services when a customer visits the ATM premises to withdraw cash. To enhance their services, relationship managers are being stationed at ATM premises to help customers with their investment portfolios and other banking services. ATMs are going to be more intelligent in days to come. It remembers the most often entered amount of withdrawal by individual cardholder and thus making it possible to have a faster cash withdrawal. And soon, these machines are going to be more interactive, with voice, data and video capabilities. The machines will be able to suggest solutions and have an interactive dialogue with users. RBI has permitted banks to install off site ATMs at centers/places identified by them, without having the need to take prior permission. RBI has also allowed well off performing urban cooperative banks to open off site ATMs provided they fulfill some basic criteria. Other banks, in order to increase their ATM network, have begun to outsource the setting up of ATMs and its management. It will help reduce their capital expenditure and reach wider population area. More banks are evaluating the same approach to increase their ATM network. At the same time, most of the banks are associating themselves up with NPCIs NFS to increase their reach across the nation. It is estimated that the number of ATMs are set to cross one lakh by 2013. Another technology which will revolutionize the rural ATM market is solar powered ATMs. SBI has planned to deploy over 300 solar-powered ATMs - developed in collaboration with IIT Madras to be first of its kind to be deployed in the country. These machines not only enable cash saving of `1,20,000 a year since they use less electricity as they do not require air conditioning, unlike regular ATMs, but they also emit less CO2 by at least 18,500 kg per year.

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6. Challenges in Pre-paid payment instruments

Despite all the advantages and bright future in store for prepaid card industry, there are several hurdles that need to be overcome. The most important challenge is legal and regulatory requirements that need to be met. Moreover, instating publics belief in pre-paid cards system will be a challenge. Therefore, education, evangelizing, and marketing remain the top three priorities for prepaid marketers. Another challenge is the long value chain that the industry follows. Retailers in India are not allowed to issue prepaid cards other than Closed System pre-paid instruments. It is a prerequisite to form a partnership with a bank. Then there is also a need to form an alliance with network provider (Visa or MasterCard) and a third party infrastructure service provider. Hence, it often becomes a difficult and painful challenge to design a prepaid business model as each member involved needs to work coherently. Alongside the buzz of globalization, it has been realized by many MNCs that certain level of localization is essential to cater to specific needs in each country. India being so multi-cultural, a common form of international product wouldnt work and thus it needs to be very regionspecific. Although, there are certain challenges associated with prepaid cards, it is an upcoming product in the payment card industry. Along with being a non-traditional market for the banks, innovations in providing prepaid solutions to identify and serve unmet financial needs bring lots of potential.

7. M-commerce and its impact

According to a World Bank study, four risk factors have been identified in the Integrity of Mobile Financial Services viz. anonymity, elusiveness, rapidity and poor oversight. Anonymity is the risk of not knowing a customers actual identity. Elusiveness is the ability to disguise mobile transaction totals, origins and destinations. Rapidity is the speed with which illicit transactions can occur. Poor oversight identity refers to the level of regulation of service providers. Few are of the opinion that M-commerce will not be successful or rather will not be able to grow at a tremendous rate because of majority of unbanked population and poor credit card penetration in India. However, countries like Cambodia and Vietnam which are much poorer economies than India and have much lesser credit card poluation and yet prove to be an example where M-commerce have seen a tremendous growth. After RBI issued guidelines for setting up M-commerce infrastructure, things are looking bright for mobile users. No longer does the facility of M-commerce remains with the people with highend GPRS enabled phones and to those only who possess credit cards. The Governments step to bring financial inclusion in the country can be achieved with the help of M-commerce. The problem of reaching customers/consumers through E-commerce (internet) was the high infrastructural costs associated with it. Communication by mobile phones to a large extentovercome the restraints imposed by lack of infrastructure developments like, roads, postal services, and may lead to efficient markets and contribute to the rapid economic growth.

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As of now, India has reached a mark of 646 million telephone connection, out of which 610 million are mobile connections. Globally, in terms of mobile subscriptions, India is the worlds 2nd largest wireless market after China. The overall mobile penetration is expected to reach 78.3% in 2013 from about 30% in 2008. By 2013, the penetration is expected to reach 142.5%, 79% and 15% in the urban (above poverty line), rural (above poverty line) and urban (below poverty line), respectively. The number of 3G handset users in India is above 20 Mn. The number of 3G handsets is expected to reach 395 Mn by 2013, an increase of about 82% (CAGR) from 2008. The obstacle in the reach of E-commerce will be taken care by M-commerce due to wide spread of usage of mobile phones. Till date, we have seen mobile phones being used for banking, buying movie tickets, book flights or train tickets, pay mobile bills and insurance premiums. The next trend in the M-commerce world will be shopping fast food, music, groceries and health care through the same platform. The advent of price war among the telecom service providers and mobile companies launching handsets at more affordable rates can be said to be among the drivers for the rise in mobile use. These Mobile Network Operators (MNOs) are focusing more on providing VAS (Value Added Services) to attract more customers. Platform like WAP, Mobile Office by various MNOs are being offered to customers at affordable rates. As a result, customers make use of it to book movie tickets, money transfer and recharge their phones. However, those people who do not have high end phones and credit cards are left out. Several initiatives are being taken to include those people. With 3G on the horizon and setting up of mobile wallets under the guidelines proposed by RBI, mobile companies can use this platform to their advantage. Interactive Voice Response (IVR) is another platform through which one can transact via Mcommerce and one need not have a GPRS enabled phone. Yet again, this technology also has its own limitations. It can be used only for enquiry based services. IVR is also more expensive as it requires making a voice call which is anytime more expensive than sending SMS or transferring data. The success of M-commerce requires inclusive growth. The trend of using M-commerce for making payments, require intervention from banks as well as telecom service providers. Financial inclusion, at present is confined to ensuring a bare minimum access to a savings bank account according to Deputy Governor of Reserve Bank of India. M-commerce is one way among many through which India can achieve the stage of financial inclusion.

8. Cash withdrawals at POS terminals

After the RBIs initiative to provide a thrust to financial inclusion and enhance customer convenience, the facility to allow cash withdrawal with debit cards at POS terminals at merchant establishments has been a trend setter in the industry. This facility is available only against debit cards issued in India. The maximum amount that can be withdrawn at POS terminals is fixed at Rs.1000/- per day. This facility may be made available at any merchant establishment designated by the bank after a process of due diligence. The facility is available irrespective of whether the card holder makes a purchase or not. Apart from providing financial inclusion to the citizens of India, this step is also a cheaper alternative to enable cash withdrawals. A POS terminal at a grocery store or a jeweller shop is a cheaper alternative for banks as opposed to set up an ATM in up-country locations which

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may not always be a viable option. Once this facility is enabled, customers in remote region of the country will not be required to travel distances to withdraw cash. Therefore, setting up POS terminals where ATMs cannot be set up will bring huge financial savings to the banks. With over 180 Mn debit cards in circulation, banks are hopeful that establishing POS terminals will take away pressure from setting up more ATMs and will also lead to less cash handling as customers will use the debit cards more for making payment. It will also facilitate to drive the debit card customers towards POS transactions.

9. Loyalty programs in Indian retail industry

Indian retail industry is the fifth largest destination globally and is ranked as the most attractive emerging market for investment in the retail sector. While the unorganized sector in Indian retail industry comprises majority of the industry, the organized sector is upcoming and rising quick. Lifestyles of Indian consumers have changed. Living in nuclear family, consumers do not mind paying extra to save time. They are becoming more experimental and are aware of fashion and brands. They also have access to more disposable income and are thus willing to indulge themselves in luxury. As a result, retail industry among many is thriving. According to a study conducted by the Indian Council for Research on International Economic Relations (ICRIER), the retail sector is expected to contribute to 22% of Indias GDP by 2010. With plethora of choices for consumers at large, a concept of loyalty program is on the rise. Loyalty programs, what Wikipedia defines are structured marketing efforts that reward, and therefore encourage, loyal buying behavior behavior which is potentially of benefit to the firm. Various names are given to such cards in the retail industry: rewards card, points card, advantage card or club card. However, the ultimate purpose of such cards remains the same. They are a plastic/paper card through which a customer is identified as a member in a loyalty program. Loyalty program is a system where a customer (card holder) is given additional discount on purchase made or is allotted some points that can be used in future purchases or can be redeemed in the form of gifts. Two types of loyalty programs (LPs) are prevalent in India: brand specific and multiple brands. When a retailer offers a loyalty card to be used exclusively for its own retail outlet is known as exclusive card which is brand specific. On the other hand, loyalty program which is associated with multiple partners that provides a single platform to thousands of merchants to interact with millions of customers and in turn customers are benefitted no matter where they shop or spend are known as coalition loyalty programs. Loyalty programs are designed according to specific needs of the company and upon using these cards, customers basic information like name, address, and item shopped is recorded. This data is then analyzed which is used by companies to develop a customer profile and thus redesign promotional activities. In emerging economy of India, loyalty programs are still in a nascent stage but have a huge potential. The industry has witnessed the launch of real time loyalty program on a pilot basis by few players and we expect this to grow substantially in future which will benefit card issuance as well as acquiring businesses.

10. Vision of regulatory authorities on payment systems

Reserve Bank of Indias vision on payment systems has been outlined in the vision document on Payment Systems in India for the period 2009-12. The objectives of RBI have the following six distinct and succinct components that would be integrated to form the universe of scope and premise of action.

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Safety Keeping the risks in various payment system products minimum and manageable if they are necessary and unavoidable. Security Giving confidence to stakeholders that the payment systems can be trusted and are reasonably protected from threats and vulnerabilities. Soundness Demonstrating the capability and ensuring the payment systems function in a non-disruptive manner. Efficiency Providing measures to assure that the payment systems are cost-effective, reliable and promote financial and economic stability. Accessibility To ensure reach of various payment systems at reasonable cost to various segments of the populace. Authorisation According entities permission to operate payment systems as per the provisions of the Payment & Settlement Systems Act and the Regulations framed thereunder. RBI has also set up The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), the apex body for regulation and supervision of payment systems. It is responsible for regulating and overseeing smooth functioning of the payment systems in the country. Several Payment system initiatives have also been taken by RBI under various segments of payment system. They are: i. ii. iii. iv. v. vi. vii. Make efforts to move away from paper based payments to the safer and more efficient modes of payments. Focus upon existing payment system products to cover more geographical areas and more populace in the country. Increase card security Card Payments Increase accessibility to the public, bringing transparency and reasonableness in charges as far as ATM payments are concerned. Rationalize charges for electronic payments (NEFT/ RTGS) and collection of outstation cheques. Issue operative guidelines for mobile banking transactions in India Mobile Payments Issue guidelines on operation of pre-paid instruments in India Pre-paid Instruments

Apart from introducing changes to make the existing Payment Systems more secure, reliable, efficient and much more, there are several projects in the pipeline which the RBI intends to pursue. i. Implement a new and feature rich RTGS system RBI realizes a need to migrate to new version of RTGS with advanced technology and features in line with similar facilities available around the world which resultantly would infuse more flexibility in operations and better liquidity saving features, etc.

ii. India MoneyLine A 24x7 system for one-to-one funds transfers At present, NEFT system operates from 9 am to 5 pm during weekdays and 9 am to 12 noon on Saturdays. The RBI is contemplating upon extending the NEFT function on a 24x7 basis or develop a new system similar akin to the Faster Payment Service in the UK that operates on a 24x7 basis. iii. India Card A domestic card initiative RBI is also contemplating upon a concept of domestic payment card (India Card) and a POS switch network for issuance and

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acceptance of payment cards. The RBI believes that there are two reasons for such a need to arise: a) The high cost borne by the Indian banks for affiliation with international card scheme entities in the absence of a domestic price setter, and b) The connection with international card scheme entities resulting in the need for routing even domestic transactions, which account for more than 90% of the total, through a switch located outside the country. iv. Redesigning ECS to function as a true Automated Clearing House (ACH) for bulk transactions At present, ECS is operational at 76 centres and making it centralized is underway. The RBI is also planning to implement a debit variant. v. Mobile payments settlement network RBI also intends to build a national infrastructure for facilitating real time mobile payments, realizing the need to enhance the present security for mobile payments. It is expected that mobile phones will emerge as an important mode for transmission of payment instructions. All the above mentioned initiatives would be taken forward in co-ordination with the NCPI.

P Ravindra is General Manager, Compliance & Risk Management with Venture Infotek Global Pvt. Ltd. A post Graduate in Sciences and PGDFM, Ravindra has over 33 years rich and distinguished experience in Banking Operations, Credit Administration, Product Development, Portfolio Management, Marketing, Client Servicing, Business Development with a PSU Bank and in Payment Products Management and Risk Management with Venture Infotek Global Pvt. Ltd.

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Research
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