Two payment companies, Paytm and Pine Labs, on September 4 launched stripped-down versions of a full-fledged Point of Sale (POS) device that can accept payments through both the Unified Payment Interface (UPI) and credit cards. But there is a slight catch.
The devices can only accept tap-and-pay card payments enabled through near-field communication (NFC) technology. They cannot accept swipe payments. For transactions above Rs 5,000, a customer would need to swipe and pay according to the norms laid down by the regulator, the Reserve Bank of India (RBI).
Paytm launched what it calls a ‘Card Soundbox’ that can announce and display both types of transactions. It comes with a rental charge of Rs 995 per month. Paytm Co-founder and Chief Executive Officer (CEO) Vijay Shekhar Sharma said that this will popularise card payments in India’s smaller towns.
Pine Labs, one of the largest full-fledged POS players in the country, launched the ‘Mini’, which costs a third of a regular POS machine at Rs 1,999.
“The card POS machine costs have been prohibitive for the tiny merchant. Excited to launch today Pine Mini, a UPI + Tap n Pay Card machine at 1/3rd price of a POS, packed with the Power and Trust of Pine Labs,” wrote Amrish Rau, Co-founder and CEO of Pine Labs on X (formerly Twitter).
The race
In the race to the top between UPI and credit cards, the former might have stolen the thunder with over 10 billion transactions a month. However, the number of credit cards in the country is also growing at a scorching pace. At the end of July this year, the total number of outstanding cards was 8.98 crore, up from 7.3 crore cards at the end of March 2022, a growth of 23 percent in 16 months, according to the data with RBI.
The average value of a credit card transaction at a POS terminal in July this year was Rs 3,475. These transactions did not need a card swipe since their value was less than Rs 5,000.
The average value of a UPI merchant transaction was Rs 667, shows data from National Payments Corporation of India(NPCI), which runs UPI. That means an average credit card customer spent five times more than a customer who paid via UPI. So, the stripped-down POS machine holds the potential to bring these higher-paying credit card customers to the merchants.
The case for convergence
As of July this year, the number of POS machines installed in the country stood at 81 lakh, and UPI QR codes, 28 crore, shows RBI data. Sixteen months ago, there were 60 lakh POS machines and 17 crore UPI QR codes. That’s a growth of over 65 percent in UPI QR codes.
During the same period, credit card spending grew by 35 percent, indicating that the growth of UPI has not affected consumer appetite for credit-led consumption growth. In value terms, overall credit card spending in July 2023 stood at Rs 1.44 lakh crore, up from Rs 1.07 crore in March 2022, according to RBI data.
Many of the premium smartphones being sold in increasing numbers every year come with NFC technology. Customers who save their card details on these phones can use them to tap-and-pay for transactions and they need not carry cards for such payments.
“We have found that merchants and consumers need card acceptance as easily as mobile payments with a Paytm QR Code. The launch of Card Soundbox will go a long way in merging the two requirements of merchants ― mobile payments and card payments,” said Sharma of Paytm.
The shift
As the UPI popularised digital payments even in the country’s smaller towns and cities, this low-cost innovation could drive the adoption of card payments in the country, said executives of Visa, Mastercard, and American Express who attended Paytm’s virtual press conference.
Payment enablers such as POS firms and banks earn merchant discount rates (MDR) or payment commissions for enabling card payments, while UPI is free for merchants. This is one of the reasons why UPI has become a favourite payment method, even for large merchants.
However, as the data suggests, an average credit card user spends five times than that of an average UPI user at merchant locations, such customers is more valuable to a merchant even if that does mean parting away MDR to payment providers. Hence these India-specific innovations find a place and could even thrive. The growth of QR codes and tap-and-pay clearly shows that customers love convenience and faster checkouts.
“With cardholders increasingly exploring faster, more convenient, and more efficient ways to transact, India has seen remarkable growth in contactless card payments. By putting the cardholder in control and uniquely encrypting each transaction, such payments reduce the risk of loss or counterfeiting and double billing,” said Gautam Aggarwal, Division President, South Asia for Mastercard.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
