cashless payment system
Abstract
India has been using electronic payment systems for many years now. However, the retail sector still has predominance of cash transactions, and payment through cards is yet to pick up. Cards (both credit and debit) are one of the most secure and convenient modes of cashless payment in retail market. The card payments data shows that even though we have 19 million credit cards, 190 million debit cards and half a million point-of-sale terminals, on an average there is just one transaction annually for every debit card and 11 transactions annually for every credit card. While trying to look for the reasons of poor usage of payment cards, this paper studies the costs involved in India by holding independent interactions with all players in the system— the banks, the card companies and the merchants; and by comparing the practice in different countries. The objective is to rationalise the costing in such a way that the merchants and customers prefer card payments as against cash and it becomes the attractive mode of payment even in the country‘s hinterland. With the rationalization in costs, the banks and card companies would continue to gain, as revenues would increase due to increase in usage and user base. Additionally, for the Government, with the new pricing the gain will be twofold— firstly there will be sizable reduction in the growth of currency management cost, and secondly, the system will generate volumes of data on spending behavior of individuals that can be used by the Government for developmental planning. It is expected that the report would prove useful for RBI and Government to further their endeavor towards bringing in an efficient cashless payment system in the country.
Objective 1.
The card based payment system includes the card companies (switch provider), banks (acquirer and issuer), merchants and cardholders, and cannot function in absence of any of these players. It is seen that though card based payment systems have been in
India has been using electronic payment systems for many years now. However, the retail sector still has predominance of cash transactions, and payment through cards is yet to pick up. Cards (both credit and debit) are one of the most secure and convenient modes of cashless payment in retail market. The card payments data shows that even though we have 19 million credit cards, 190 million debit cards and half a million point-of-sale terminals, on an average there is just one transaction annually for every debit card and 11 transactions annually for every credit card. While trying to look for the reasons of poor usage of payment cards, this paper studies the costs involved in India by holding independent interactions with all players in the system— the banks, the card companies and the merchants; and by comparing the practice in different countries. The objective is to rationalise the costing in such a way that the merchants and customers prefer card payments as against cash and it becomes the attractive mode of payment even in the country‘s hinterland. With the rationalization in costs, the banks and card companies would continue to gain, as revenues would increase due to increase in usage and user base. Additionally, for the Government, with the new pricing the gain will be twofold— firstly there will be sizable reduction in the growth of currency management cost, and secondly, the system will generate volumes of data on spending behavior of individuals that can be used by the Government for developmental planning. It is expected that the report would prove useful for RBI and Government to further their endeavor towards bringing in an efficient cashless payment system in the country.
Objective 1.
The card based payment system includes the card companies (switch provider), banks (acquirer and issuer), merchants and cardholders, and cannot function in absence of any of these players. It is seen that though card based payment systems have been in
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